Lord Justice Tomlinson :
Introduction
- The Appellant, and Claimant in the action, a Kazakh bank to which I shall refer as "Alliance", claims that it is the victim of a massive fraud, the product of a conspiracy between the Respondents, the Defendants in the Action. The principal conspirator is said to have been the Sixth Respondent, to whom I shall refer as "D6", who was at all material times Chairman of the Board of Directors of Alliance. The Seventh and Eighth Respondents, D7 and D8, are the brothers of D6. The brothers between them owned D9, a Kazakh holding company, which at times material to the alleged fraud owned more than 70% of Alliance. Ds 1-5 are companies all of which are admittedly beneficially owned by D6 and are alleged to have been controlled by the brothers, D5 being at the material time the corporate director of Ds 1-4. All of the other personal Defendants, Ds 10-15, at all material times held senior positions, at director level, with Alliance, D15 having additionally been Director General of D9. It is said that by their dishonest scheme the Defendants, between 2005 and 2009, defrauded Alliance of US$1.1 billion.
- On 5 April 2011 Teare J, on an ex parte application in the Commercial Court, granted to Alliance permission to serve process out of the jurisdiction on Ds 1, 2 and 4-15. D3 was in a limited respect amenable to service within the jurisdiction as I shall shortly explain. At the same time Teare J also granted a Worldwide Freezing Order against all the Defendants. Alliance asserted both express and implied contractual causes of action governed by English law against Ds 1-4 and 6-8, although only the former, the express contractual causes of action, were expressly relied upon in the affidavit in support of the application for permission to serve out of the jurisdiction. It follows that it is questionable whether the order of Teare J entitled Alliance to pursue its pleaded cause of action in implied contract. This is a point to which I shall return. Only Ds 1-4, all corporations, were named as party to the express contracts upon which Alliance sued. However Ds 1-4 were alleged to be the "puppets" of Ds 6-8, their "puppet masters". Ds 6-8 were alleged to be themselves party to the agreements into which they had caused their puppets to enter. As I shall later explain Ds 6-8 are equally alleged to be party to the implied contracts.
- All of the Defendants save Ds 12 and 14 were served with the proceedings. D5 applied to set aside service but has not pursued the application. Ds 10, 11, 13 and 15 have neither acknowledged service nor applied to set aside service upon them. Alliance intends to proceed against Ds 5, 10, 11, 13 and 15, sometimes together called "the inactive defendants", in order to obtain against them a reasoned judgment of the English court.
- At an eleven-day hearing inter partes before Burton J in the Commercial Court in November 2011 Ds 1, 2 and 4 and Ds 6 to 9 sought to set aside the permission granted to serve them out of the jurisdiction and Ds 1-4 and 6-9 sought a declaration that the court has no jurisdiction to try the claim, or alternatively that it should not exercise any jurisdiction which it may have. In the alternative Ds 1-4 sought a stay of the proceedings in reliance upon a contractual arbitration clause. All eight of the active defendants therefore sought the consequential setting aside of the WFO. In addition, all eight of the active defendants contended that the WFO fell to be set aside on account of material non-disclosure by Alliance in making its ex parte application to Teare J.
- Before Burton J Alliance sought additional relief over and above the maintenance of the orders made by Teare J. First, it sought permission to serve amended Particulars of Claim asserting that its claims against the Defendants made in English law by way of conspiracy, dishonest assistance, knowing receipt and unjust enrichment are sustainable, in the alternative, as a matter of and by reference to the law of Kazakhstan. Secondly, recognising that the service upon D3 in London pursuant to a contractual service of process clause could be effective only in respect of the express contractual cause of action to which the agreement to accept service relates, Alliance sought permission to serve D3 out of the jurisdiction in respect of the additional causes of action in tort. No application was made for permission to serve out in respect of the implied contractual claim, whether against D3 or against any other Defendant.
- Burton J delivered his reserved judgment, [2011] EWHC 3281 (Comm), on 14 December 2011. By his Order made two days later on 16 December 2011 he set aside the permission to serve out of the jurisdiction and, consequentially, the WFO. He also set aside service of the Claim Form and Particulars of Claim on Ds 1-4 and 6-9, the active defendants. His conclusions were broadly as follows:-
i) There is a serious issue to be tried in respect of what I have so far called Alliance's express contractual claims, which are in fact claims pursued by Alliance in right of subrogation against Ds 3, 4, 6, 7, and 8. In reaching the conclusion that these contractual claims have a serious prospect of success against Ds 6, 7 and 8, who were not nominally parties to the contracts, the judge unsurprisingly followed his own decision in Antonio Gramsci Shipping Corporation v Stepanovs [2011] 1 Lloyd's LR 647 to the effect that in analogous circumstances the corporate veil could be pierced and the personal defendants, Ds 6, 7 and 8 shown to have been always themselves party to the contracts which they procured their puppets to conclude.
ii) The judge expressed no view about Alliance's claims pleaded in implied contract, from which I infer that he heard no argument as those causes of action were not relied upon as satisfying the criteria for service out of the jurisdiction.
iii) He held that there is a serious issue to be tried in respect of all of Alliance's non-contractual claims, whether pursued in the English law of tort, equity or unjust enrichment or under the Kazakh Civil Code.
iv) The judge concluded that Alliance is able to bring itself within one or more of the "gateways" set out in Practice Direction 6B paragraph 3.1. Unsurprisingly, he regarded the express contractual claims as falling within paragraph 3.1(6)(c) and (d) since the contracts contained in addition to the English exclusive jurisdiction clause an express choice of English law as the governing law. Although the judge's reasoning on this topic is not entirely clear, he appears also to have concluded that all the remaining non-contractual claims are to be regarded as claims made in respect of those same contracts. He also concluded that in any event all of the Defendants other than D3 were proper parties to the claim against D3, alternatively that all of the Defendants other than Ds 3, 4, 6, 7 and 8 were proper parties to the claims against Ds 3, 4, 6, 7, and 8.
v) Alliance had not established that the English court is clearly and distinctly the most appropriate forum for the resolution of the disputes. Further, insofar as Alliance sought to found jurisdiction for its subrogated express contractual claims in reliance upon terms in those contracts conferring upon the English court exclusive jurisdiction, there existed strong reasons or exceptional circumstances which justified the court in not holding the relevant Defendants to their agreement and in declining to exercise jurisdiction over the claims.
vi) These conclusions rendered it unnecessary for the judge to consider the allegations of material non-disclosure on the ex parte application. He nonetheless addressed the issue to some extent. He concluded that in four respects there had been either non-disclosure or an irregularity which was material to the exercise by Teare J of his discretion but that these went neither to the root of the question whether there was a good arguable case of substantial fraud nor to the risk of dissipation of assets. In the circumstances the judge found it unnecessary to decide whether he would, had the issue been live, either have set aside the orders made by Teare J or, had he done so, re-granted them.
- In line with his conclusions set out above, the judge also refused the applications of Alliance:-
i) to amend its Particulars of Claim so as to assert non-contractual claims pursuant to the law of Kazakhstan and to serve the same outside the jurisdiction; and
ii) to serve D3 out of the jurisdiction in respect of the non-contractual claims.
- Although this was not a point discussed at the hearing before us, on reflection I am unsure on what basis the judge set aside service of the Claim Form and Particulars of Claim upon D3. D3 had been served as of right in respect of the subrogated express contractual claim. D3's application for a stay in reliance upon an arbitration clause contained in the agreement was rightly rejected by the judge at paragraph 28 of his judgment. On the hypothesis that Alliance could exercise the rights of the "Lender" under the relevant contracts, the only basis upon which it could claim under them, then the Lender had the right to resort to the jurisdiction of the English court in preference to arbitration. D3 had made, so far as I am aware, no free-standing application for a stay of the action on forum non conveniens grounds and in any event the judge did not impose a stay. It may be said that the judge's conclusion on appropriate forum in the service out context would have led to the success of such an application, if made, although of course the burden of persuasion would have been on D3 rather than upon Alliance. In view of the conclusion I have reached as to the availability of a subrogated claim in contract against D3, this point is however of academic interest only.
- The judge granted Alliance permission to appeal to this court on the appropriate forum issue and granted to all the active defendants permission to appeal as necessary. He stayed the discharge of the WFO until the conclusion of any appeal by Alliance to this court.
- Alliance appeals against the judge's Order, contending that he failed to give sufficient weight to the contracting parties' choice of England as the appropriate forum. The active defendants cross-appeal contending principally that the judge was wrong to regard Alliance as having available to it any express contractual claim against any of Ds 1-4 and 6-9. All of the active defendants contend that it is not sufficiently arguable that the non-contractual causes of action are governed by English law, rendering the English forum still less appropriate. All of the active defendants challenge the conclusions of the judge as to the availability of the gateways, whether under Practice Direction 6B paragraph 3.1(6), a claim made in respect of a contract or, under sub-paragraph (3), necessary or proper party. All of the active defendants contend that the judge's Order should in any event be upheld on the ground of material non-disclosure. Alliance in turn seeks additionally from this court permission to serve upon Ds 1-4 out of the jurisdiction a claim in implied contract.
The alleged fraud in outline
- I summarise in this section of the judgment the allegations made by Alliance which they would seek to establish at trial. The allegations are not of course yet proven and they are denied by the Respondents. At all relevant times the brothers owned D9 (and its predecessor Seimar Investment Group / Investment Group Seimar ("SIG")), which operated as a holding company for their interests. D9 owned the majority of the shares in Alliance. D6 was both Chairman of D9 and also Chairman of the Board of Alliance. D7 and D8 also sat on the Board of D9. D8 was Co-Chairman of D9. In order to facilitate their alleged fraud the brothers set up in the British Virgin Islands Ds 1, 2 and 4 and in Samoa D3 as offshore special purpose vehicles. Those vehicles were mere facades, alter egos or nominees used by the brothers Ds 6-8. Their common corporate director at all material times was D5, which took its instructions from the brothers.
- Between November 2005 and April 2008 Alliance was caused by the brothers, with the assistance of Ds 10-15, senior employees of Alliance, to acquire US Treasury Notes called "STRIPS", an acronym for "Separate Trading of Registered Interest and Principal Securities", in a total value of US$1.1 billion. I shall from time to time call Ds 6-8 and Ds 10-15 "the conspirators".
- The STRIPS were then, without the knowledge of anyone at Alliance other than the conspirators, charged or pledged to two Cypriot banks as security for loans made by those banks to the offshore SPVs, Ds 1-4. The Cypriot lenders were Reachcom Public Limited, "Reachcom", a subsidiary of a Russian bank, Renaissance Capital and Metropol Cyprus, "Metropol", again a subsidiary of a Russian Bank, Metropol. Reachcom was the lender to Ds 3 and 4. Metropol was the lender to Ds 1 and 2.
- There was a series of transactions, it is said over a dozen, over the period 2005–2008. In each case there was generated:-
i) a Loan Agreement between the Cypriot lender and the offshore SPV borrower; and
ii) a Guarantee between Alliance and the Cypriot lender.
The loans were of three or five years' duration and attracted monthly interest.
- In this manner, approximately US$1.1 billion was lent by Reachcom and Metropol to Ds 1-4. STRIPS to an equivalent value were acquired by Alliance, held in custody accounts in Cyprus operated by associates of Reachcom and Metropol, and charged to Reachcom and Metropol as security for the loans.
- There was never any intention that Ds 1-4 should repay the loans. The money lent was laundered back through a network of offshore companies principally to D9 or its predecessor, Seimar Investment Group. More than US$600M was used by the brothers/D9 to purchase more shares in Alliance, some or all of which were then sold at a large profit in an Initial Public Offering on the London Stock Exchange in 2007. US$440M was transferred indirectly by D1 to finance the acquisition of a shareholding in D9. Other large sums were extracted from the offshore SPVs by the brothers and their family members. By these means Ds 1-4 were divested of any ability to repay the loans.
- In the latter part of 2008 Alliance, in common with many other international banks, experienced severe liquidity problems. By resolution of 27 November 2008 the Kazakh Government injected additional capital and in return became a shareholder in the bank. Alliance's situation worsened in early 2009, exacerbated by large scale withdrawals from retail deposit accounts. Accordingly, the Kazakh sovereign wealth fund, Samruk-Kazyna stepped in and recapitalised the bank, in exchange for pledges, including voting rights over the majority of Alliance's issued shares. In or around 2010 Samruk-Kazyna acquired D9's shares in Alliance and became the majority shareholder.
- It is said that in early 2009 Ds 1-4 defaulted on the loans. There is as yet no evidence of this, although Ds 1-4 do not deny it, and Alliance assumes that the offshore SPVs did default on the loans. On 10 and 15 April 2009 Alliance received Notice of Enforcement of Security from the operators of the custody accounts informing them (i) of the default of Ds 3 and 4 and (ii) that Reachcom was exercising its rights pursuant to Clause 9 of the Guarantees between Alliance and Reachcom to transfer the collateral securities from Alliance's custody account to Renaissance Securities Trading Limited in Bermuda. On 20 May 2009 Metropol informed Alliance that all the STRIPS in Alliance's custody account had been debited by Metropol on 2 February 2009. In this manner, despite protest from Alliance, STRIPs to the value of US$1,118,905,408.55 were transferred out of the relevant custody accounts.
- Liability is of course denied, but there is no appeal against the judge's conclusion that there is a good arguable case to the effect that this was a massive fraud kept secret from the non-participating members of the Board of Directors of Alliance and from their auditors in which all of the Respondents participated in the manner alleged. It is therefore unnecessary that I should rehearse here the reasons which led the judge to that conclusion. It is right that I record that the Respondents point to certain observations of the Kazakh court to the effect that some of the money was used to increase the share capital of Alliance and that the shareholders left undistributed profits in an amount of US$1.3 billion for the purposes of the bank's development. I shall have to return to those observations, a word which I use deliberately since I am unsure whether they amount to findings, in the context of appropriate forum, and I do not overlook them when considering the case in the round. The fact remains however that the judge has concluded that there is a serious case to be tried that the Respondents participated in a massive fraud, and the Respondents do not for present purposes challenge that conclusion.
The Terms of the Loan Agreements and the Guarantees
- The terms of the Loan Agreements and of the Guarantees are central to this appeal for two reasons. Firstly, Alliance asserts that its primary claim is a contractual claim under the Reachcom Loan Agreements. It asserts that since its secretly charged STRIPS were used by Reachcom, under the Guarantees, to settle the entire outstanding balance of the loans to Ds 3 and 4, Alliance has therefore discharged the liability of Ds 3 and 4 to Reachcom. The effect of this, as to which the judge concluded that there is a serious issue to be tried, is that Alliance is subrogated to all of the rights of Reachcom and stands in its shoes under the Loan Agreements. Thus Alliance brings in its own name, in right of subrogation, against Ds 3 and 4 a contractual claim for repayment of the loans, alternatively for damages for failure to pay in breach of contract. The Respondents made much of the circumstance that the measure of the claim is in each case the value of the misappropriated STRIPS, but that seems to me neither here nor there, as this sum coincides with the outstanding value of the loans. Indeed, STRIPS to a slightly greater value than the outstanding loans were transferred from Alliance's account but Reachcom accounted for the small excess shortly thereafter.
- The real significance of Alliance's claim under the Loan Agreements lies not in an expectation of recovery against the offshore SPVs which have been allegedly emptied of assets but rather in the benefit of choice of law and, more particularly, jurisdiction clauses upon which it is said Alliance is entitled to rely. Thus the Reachcom Loan Agreement of 17 October 2006 with D3 which is before the court and which is in this respect typical of all of the Reachcom loan agreements concluded with Ds 3 and 4 relevantly provides:-
Reachcom is defined as the Lender, Serbina Limited as the Borrower and in the agreement the guarantor means Alliance. The "repayment date" is the day falling three years after the day on which the Advance was made.
"1.2 Interpretation
Any reference in this Agreement to:
. . .
the Lender shall be construed so as to include its and any subsequent successors in accordance with their respective interests;
. . .
a "successor" shall be construed so as to include an assignee or successor in title of such party and any person who under the laws of its jurisdiction of incorporation or domicile has assumed the rights and obligations of such party under this Agreement or to which, under such laws, such rights and obligations have been transferred;
. . .
1.7 Third Party Rights
Subject to this Clause 1.7 (Third Party Rights) and Clause 21.5 (Renaissance Group), a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1990 to enforce any term of this Agreement.
. . .
2.1 Grant of the Facility
The Lender grants to the Borrower, upon the terms and subject to the conditions hereof, a dollar term loan facility in an aggregate amount of $103,000,000.
2.2 Purpose and Application
The Facility is intended for general corporate purposes and, accordingly the Borrower shall apply all amounts raised by it hereunder in or towards satisfaction of its general corporate financing requirements and the Lender shall not be obliged to concern itself with such application.
. . .
5.1 Payment of Interest
On the last day of each Interest period the Borrower shall pay accrued interest on the Advance to which such Interest Period relates.
5.2 Rate of Interest
The rate of interest applicable to an Advance from time to time during an Interest Period relating thereto shall be 8.75 per cent per annum.
6.1 Repayment
The Borrower shall repay the Loan by repaying the whole of the amount of the Loan at the close of business in London on the Repayment Date.
. . .
12 REPRESENTATIONS
The Borrower makes the representations and warranties set out in Clause 12.1 (Status) to Clause 12.15 (Private and Commercial Acts) and acknowledges that the Lender has entered into this Agreement in reliance on those representations and warranties.
. . .
12.2 Governing Law and Judgements
In any proceedings taken in its jurisdiction of incorporation in relation to this Agreement the choice of English law as the governing law of this Agreement and any arbitration award obtained in accordance with this Agreement will be recognised and enforced.
. . .
21 ASSIGNMENTS
21.1 Binding Agreement
This Agreement shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors.
. . .
21.3 Assignments by the Lender
The Lender may, at any time, assign all or any of its rights and benefits hereunder to any member of the Renaissance Group.
. . .
25 GOVERNING LAW
This Agreement is governed by English law.
26. ARBITRATION
26.1 Arbitration
Subject to Clause 26.4 (Lender's Option), any dispute (a "Dispute") arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement or the consequences of its nullity) shall be referred to and finally resolved by arbitration under the Arbitration Rules ("the Rules") of the London Court of International Arbitration.
26.2 Procedure for Arbitration
The arbitral tribunal shall consist of one arbitrator who shall be a Queen's Counsel of at least five years' standing. The seat of arbitration shall be in London, England and the language of the arbitration shall be English.
26.3 Recourse to Courts
Save as provided in Clause 26.4 (Lender's Option), the parties exclude the jurisdiction of the courts under Sections 45 and 69 of the Arbitration Act 1996.
26.4 Lender's Option
Before an arbitrator has been appointed to determine a Dispute, the Lender may by notice in writing to all other parties to this Agreement require that all Disputes or a specific Dispute be heard by a court of law. If the Lender gives such notice, the Dispute to which such notice refers shall be determined in accordance with Clause 27 (Jurisdiction).
27 JURISDICTION
27.1 English Courts
The courts of England have exclusive jurisdiction to settle any dispute (a "Dispute") arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement or the consequences of any Dispute).
27.2 Convenient Forum
The parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes between them and, accordingly, that they will not argue to the contrary.
27.3 Non-Exclusive Jurisdiction
This Clause 27 is for the benefit of the Lender only. As a result and notwithstanding Clause 27.1 (English Courts), it does not prevent Lender from taking proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent Proceedings in any number of jurisdictions."
- Additionally, the Reachcom loan agreements with D3 but not with D4 contain a service of process clause to which I have already referred in the following terms:-
"The Borrower agrees that the documents which start any Proceedings and any other documents required to be served in relation to those Proceedings may be served on such person (set out beneath the Guarantor's name on the execution page hereof) who has been nominated by the Borrower and who has accepted to act as the agent for the Borrower for this purpose. If the appointment of the person mentioned in this Clause 27.4 ceases to be effective, the Borrower shall immediately appoint another person in England to accept service of process on its behalf in England. If the Borrower fails to do so (and such failure continues for a period of not less than fourteen days), the Lender shall be entitled to appoint such a person by notice to the Borrower. Nothing contained herein shall restrict the right to serve process in any other manner allowed by law. This clause 27.4 applies to Proceedings in England and to Proceedings elsewhere."
The nominated agent was Renaissance Capital Limited in Copthall Avenue in the City of London, an associated company of Reachcom.
- The specimen "Deed of Guarantee and Charge" between Alliance and Reachcom which is before the court is dated 29 June 2007 and thus does not correspond with the Loan Agreement which I have just described, but it is said to be typical. It provides:-
"1 INTERPRETATION
1.1 Words and expressions defined in the Facility Agreement shall bear the same meanings in this Deed and, in the event of any inconsistency between words and expressions defined in the Facility Agreement and words and expressions defined in this Deed, this Deed will govern.
1.2 The following words and expressions used in this Deed shall, except where the context otherwise requires, have the following meanings:
"Broker" means Renaissance Securities (Cyprus) Limited;
"Brokerage Agreement" means the Investment Services Deed dated 09 November 2005, between the Broker and the Guarantor;
"Fixed Charge Securities" means (i) the Securities specified in Schedule 1 to this Deed; (ii) the Securities specified as fixed charge securities pursuant to Clause 4.1; and (iii) the Securities deemed to be Fixed Charge Securities pursuant to Clause 4.2;
"Liabilities" means all present and future obligations of the Borrower under the Facility Agreement and "Liability" shall be construed accordingly;
"Secured Obligations" means (i) the Liabilities and (ii) all present and future obligations of the Guarantor under this Deed; and
"Securities" means all notes, bonds, stock, shares or other instruments held from time to time by the Broker on behalf of the Guarantor on the terms of the Brokerage Agreement.
. . .
2 GUARANTEE AND INDEMNITIES
2.1 The Guarantor irrevocably and unconditionally:
(a) guarantees to the Lender punctual performance by the Borrower of all the Liabilities;
(b) undertakes with the Lender that whenever the Borrower does not pay any amount when due under or in connection with or arising out of the Liabilities the Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and
(c) agrees, as a primary obligation, to indemnify the Lender immediately on demand against any cost, loss or liability suffered by the Lender as a result of any Liability being or becoming unenforceable, void, voidable, ineffective, invalid or illegal (and the amount of the cost, loss or liability shall be equal to the amount which the Lender would otherwise have been entitled to recover).
. . .
3 THE CHARGE
3.1 As continuing security to the Lender for the due and punctual performance and observance of the Secured Obligations the Guarantor with full title guarantee:
(a) hereby charges by way of first fixed charge in favour of the Lender (i) the Fixed Charge Securities, all the Guarantor's right, title and interest in the Fixed Charge Securities and any sums received from the Fixed Charge Securities, (ii) the Account and all right, title and interest of the Guarantor in the Account and any balance whatsoever standing to the credit of the Account; and
(b) hereby assigns by way of security in favour of the Lender all its rights, title and interest under the Brokerage Agreement in respect of the Fixed Charge Securities and any sums or securities received or receivable by the Guarantor thereunder.
3.2 As a continuing security to the Lender for the due and punctual performance and observance of the Secured Obligations the Guarantor with full title guarantee hereby charges by way of first floating charge in favour of the Lender the Floating Charge Securities, all the Guarantor's right, title and interest in the Floating Charge Securities and any sums received from the Floating Charge Securities.
3.3 The Guarantor shall promptly following execution hereof procure delivery to the Lender, in respect of the Charged Assets, the Notice of Charge duly executed by or on behalf of the Guarantor and acknowledged by the Broker substantially in the form set out in Schedule 3 to this Deed.
. . .
9 ENFORCEMENT OF SECURITY
9.1 The Lender shall be entitled without prior notice to enforce all or any part of the security constituted by this Deed immediately or at any time or times after:-
(a) an Event of Default has occurred; or
(b) the Guarantor fails to perform any of its obligations under this Deed and that failure continues for 30 days after notice of that failure is given to the Guarantor.
9.2 At any time after this Deed shall have become enforceable the Lender may without further notice in respect of any of the Charged Assets take possession of the Charged Assets or any part thereof and may in its discretion sell, call in, collect and convert into money the Charged Assets or any part thereof in such manner and upon such terms as it shall think fit and so that the power of sale conferred by Section 101 of the Law of Property Act 1925 (but free from the restrictions imposed by Sections 93 and 103 of such Act) shall apply and have effect on the basis that this Deed constitutes a mortgage within the meaning of that Act and the Lender is a mortgagee exercising the power of sale conferred upon mortgagees by that Act.
. . .
9.9 The Lender shall be entitled, at any time after the security constituted by this Deed shall have become enforceable, instead of selling, calling in, collecting or converting into money the Charged Assets or any part thereof or appointing a receiver thereof, to appropriate and to hold and retain and deal with the Charged Assets or any part thereof for its own account absolutely. In the event that the Lender so appropriates and holds and retains and deals with the Charged Assets or any part thereof for its own account, the Lender shall value the Charged Assets (or the relevant part thereof) in a reasonable commercial manner and the Lender shall be deemed to have recovered by way of the exercise of its entitlement under this Clause 9.9 an amount equal to such value. Accordingly:
(a) if the total amount recovered by the Lender by way of the exercise of its entitlement under this Deed (including its entitlement under this Clause 9.9) (the "Recovery Amount") exceeds the amount of the Secured Obligations the Lender shall account to the Guarantor for such excess; and
(b) if the Recovery Amount is less than the Secured Obligations, the Guarantor shall remain liable to the Lender for such short-fall.
. . .
13. ASSIGNMENT
13.1 This Deed shall enure to the benefit of any successor to or assignee of the rights and benefit of the Lender hereunder. The Guarantor may not assign, transfer or otherwise dispose of any or all of its rights or obligations under this Deed.
. . .
17 GOVERNING LAW AND JURISDICTION
17.1 This Deed shall be governed by and construed in accordance with English law.
17.2 Subject to Clause 17.3, any dispute (a "Dispute") arising out of or in connection with this Deed (including a dispute regarding the existence, validity or termination of this Deed or the consequences of its nullity) shall be referred to and finally resolved by arbitration under the Arbitration Rules (the "Rules") of the London Court of International Arbitration. The arbitral tribunal shall consist of one arbitrator who shall be a Queen's Counsel of at least five years' standing. The seat of arbitration shall be London, England and the language of the arbitration shall be English.
17.3 The parties exclude the jurisdiction of the courts under Sections 45 and 69 of the Arbitration Act 1996 provided however that before an arbitrator has been appointed to determine a Dispute, the Lender may by notice in writing to all other parties to this Deed required that all Disputes or a specific Dispute be heard by a court of law. If the Lender gives such notice, the Dispute to which such notice refers shall be determined in accordance with Clause 17.4. This Clause 17.3 is for the benefit of the Lender only.
17.4. The courts of England have exclusive jurisdiction to settle any Dispute. The parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes between them and, accordingly, that they will not argue to the contrary.
17.5 As a result and notwithstanding Clause 17.3, it does not prevent the Lender from taking proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent Proceedings in any number of jurisdictions.
. . ."
Schedule 1 lists the STRIPS which are to become the charged assets. The Guarantee is signed on behalf of Alliance by D13, Irina Ivanova, Director of Treasury Department and an alleged conspirator who, it is alleged, had no authority to sign the Guarantee. The other Reachcom guarantees are signed on behalf of Alliance by D10, D12 and D14, each of whom is said similarly to have lacked authority so to do.
- There is before the court a specimen Notice of Charge as prescribed by Clause 3.3 of the Guarantee. Addressed to the Broker and Operator of the custody account, Renaissance Securities (Cyprus) Limited and copied to Reachcom it charges the STRIPS in favour of Reachcom. It too is signed by D13.
- In its Particulars of Claim Alliance asserts a similar entitlement to stand in the shoes of Metropol for the purpose of suing Ds 1 and 2 under the Metropol Loan Agreements. It is there said that it is to be inferred that those Loan Agreements, which were not available to Alliance at that time, are in substantially the same form as the Reachcom Loan Agreements. By the time of the hearing before Burton J certain agreements had been produced by Ds 1 and 2 but they purport to evidence not loans of money but loans of the STRIPS. This makes no commercial sense and does not correspond with other evidence to the effect that Ds 1 and 2 had received, from the "Russian banks", loans which they then failed to repay. The corresponding guarantee between Alliance and Metropol which is before the court likewise purportedly confers upon Metropol the right to lend the STRIPS to D1. Alliance does not now seek to make a subrogated claim under this form of Metropol Loan Agreement against either D1 or D2.
- Alliance maintained before Burton J that there must be other, as yet undisclosed, agreements governing the actual loans of money made by Metropol to Ds 1 and 2 and that it is to be inferred that they are on substantially the same terms as the Reachcom Loan Agreements. Burton J declined to draw that inference and Alliance does not appeal against his conclusion that there is not a sufficiently arguable case as to the existence of Metropol Loan Agreements on similar terms to the Reachcom Loan Agreements. Before us Mr Daniel Toledano QC for Alliance asserted no entitlement to make a subrogated contractual claim against Ds 1 and 2 although he did assert that Alliance's non-contractual claims in tort against Metropol are claims made in respect of either the Metropol Loan Agreements or the Reachcom Loan Agreements for the purpose of the gateway at Practice Direction 6B paragraph 3.1(6), a point to which I must return.
A Subrogated Claim?
- The first question which arises on the appeal is whether Alliance has a real prospect of success in its subrogated claims against Ds 3 and 4, this being the test favoured by Lord Collins of Mapesbury in giving the advice of the Judicial Committee of the Privy Council in A K Investment v Kyrgyz Mobil Tel Limited [2012] 1 WLR 1804 at paragraph 71. This in turn raises the question whether, if a subrogated claim is available, Alliance can maintain it in its own name without joining Reachcom to the proceedings. In this action Alliance maintains that the guarantees it purportedly gave to Reachcom pursuant to which it has apparently discharged the obligation of Ds 3 and 4 were unauthorised and that entry into them was contrary to the best interests of Alliance and not for the purpose of its business. Ordinarily that would be a precursor to an assertion that the guarantees are in consequence invalid and/or not binding on Alliance. That is, unsurprisingly, not an assertion made in these proceedings to which Reachcom is not a party. However at paragraph 26 of the Amended Points of Claim Alliance reserves all of its rights as against Reachcom (and Metropol) which must include the right to claim that the guarantees were invalid and/or unenforceable therefore generating in Reachcom an obligation to restore to Alliance the STRIPS and/or their value. Alliance was careful to maintain this reservation of its position on the ex parte application to Teare J. Moreover the invalidity of the Reachcom guarantees has been asserted in proceedings in Kazakhstan which can be regarded as effectively brought on behalf of Alliance.
- Thus on 25 March 2010 the Prosecutor's Office of Almaty, acting on behalf of Samruk-Kazyna, by now 100% shareholder in Alliance, brought proceedings against Reachcom, Renaissance Securities (Cyprus) Limited and Alliance in the Specialised Interdistrict Economic Court of Almaty. The purpose of this action was to declare invalid the guarantees purportedly given by Alliance to Reachcom and to oblige Renaissance to transfer the STRIPS back to the account of Alliance. Alliance participated in these proceedings although Reachcom and Renaissance did not. On 20 July 2011, in the absence of Reachcom and Renaissance but in the presence of representatives of both the Prosecutor and Alliance, the court delivered its judgment in which it recited that Alliance admitted the claim, as confirmed by a written statement attached to the case files. The court declared that the guarantees had been concluded by Alliance in violation of the norms of the laws of Kazakhstan and of the internal normative documents of the Bank (Alliance) and were invalid. Renaissance was directed to transfer the STRIPS to the account of Alliance.
- Mr Toledano points out that this was a conclusion reached by reference to the law of Kazakhstan and that the guarantees are governed by English law and contain English arbitration provisions. He further points out that the decision of the Almaty court does not undo the circumstance that Alliance's STRIPS were appropriated under compulsion. All that may be so, but the action was directed towards reversal of the effect of that compulsion which, if it were achieved, would render Ds 3 and 4 liable to be pursued by Reachcom for the amounts outstanding under the Loan Agreements.
- By a judgment dated 1 February 2012, following a hearing on 26 December 2011 at which all parties including Reachcom and Renaissance were represented, the Appellate Board of the Almaty City Court set aside the earlier decision without examination of the merits on the basis that the parties to the Guarantee had elected that disputes should be resolved through arbitration in London. It rejected as implausible the contention that Samruk-Kazyna as 100% shareholder in the Bank was not party to the Guarantees. From the translation of the judgment which is before the court it is completely unclear what stance was adopted by the various parties. On one reading it was the Prosecutor who asked for the earlier ruling to be set aside whilst the representatives of Reachcom and Renaissance asked for it to be left unaltered, but bearing in mind that Reachcom and Renaissance had by now appeared in the proceedings it seems more likely, as is elsewhere suggested, that it was on their initiative that the judgment was set aside. It is however far from clear. The judgment concludes with a statement that the court ruling may be appealed by means of filing with the Almaty City Court within ten days a special appeal or an objection. There is no evidence that this has been done.
- Finally in this regard I note in passing that on 3 November 2011 Alliance made to the London Court of International Arbitration a request for Arbitration against Metropol under the LCIA Rules. In that document the Metropol guarantees and/or their underlying obligations and purpose are said to be "illegal under the law of England and/or Kazakhstan".
- Burton J concluded that there is a serious issue to be tried that Alliance may pursue, in its own name, a subrogated claim against Ds 3, 4, 6, 7 and 8. On the second day of the hearing before us this court, differently constituted, decided in VTB Capital plc v Nutritek and Others [2012] EWCA Civ 808 that a contractual claim against "puppeteers" analogous to Ds 6-8 is unsustainable as a matter of law, thereby declining to follow Burton J's approach to "veil piercing" which the judge first expressed in Gramsci and followed in the present case. Mr Toledano accepted that this decision precluded him from asserting in this court that Alliance may claim against Ds 6, 7 and 8 in contract. He did however assert that the circumstance that Ds 6, 7 and 8 had procured Ds 3 and 4 to agree to exclusive jurisdiction clauses to which Reachcom was entitled to resort has residual relevance to the exercise of discretion and/or the issue of appropriate forum. I shall revert to this point.
- The judge was satisfied that the subrogation claim against Ds 3 and 4 is sufficiently arguable by reference to and reliance upon the discussion of extinguished rights subrogation and subsisting rights subrogation in Mitchell and Watterson, Subrogation Law and Practice (2007), at paragraphs 1:05 to 1:08, 2:18, 6:07 and 9:10. Extinguished rights subrogation, a process involving legal fiction or what Lord Hoffmann described in Banque Financiere de la Cité v Parc (Battersea) and Others) [1999] 1 AC 221 at page 236 as "not a literal truth but rather a metaphor or analogy", is described thus at paragraph 1:05 of Mitchell and Watterson:-
"1.05 The first situation arises when a defendant owes an obligation to a creditor, for example because he is contractually bound to pay him money, or has committed a tort against him, or has been unjustly enriched at his expense. A claimant then pays the creditor in respect of the defendant's obligation; or else another party – perhaps the defendant himself – pays the creditor using the claimant's money. As a result of this payment, the defendant's obligation is discharged, and the creditor's corresponding rights are extinguished. In these circumstances, the claimant may then have a direct claim against the defendant, either because the defendant has previously agreed to indemnify him for his expenditure, or else because the defendant is unjustly enriched at his expense. The claimant may also have a subrogation claim – i.e. he may be entitled to supplement his direct claim by asserting the right to be treated, by a legal fiction, as though the creditor's rights were not extinguished by the payment, but were transferred to the claimant so that he could enforce them for his own benefit. By this means the claimant is given new rights which replicate the creditor's extinguished rights."
- The judge described subsisting rights subrogation in this way:-
"22. In the case of Subsisting Rights Subrogation, it is necessary for the subrogated claimant to sue in the name of the original debtor (as would ordinarily be the case in indemnity insurance, where there would be a clause to that effect in the insurance) or to join the original debtor as a party to the proceedings. Examples of such a case are Smith v Mainwaring [1986] 2 Lloyd's Law Rep 244 and Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] 1 AC 643, where, in each case, the claim failed for lack of such joinder. In an Extinguished Rights claim, the subrogated claimant is pursuing its own rights (the original creditor's rights being extinguished because the debtor's obligation to it has been discharged in full) and is therefore permitted to sue in its own name and without joinder of the original debtor: examples of such cases are Banque Financière de la Cité SA v Parc (Battersea) Ltd [1999] 1 AC 221, Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] 2 AER (Comm) 365 and Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759."
- The judge went on to explain why in the former case the subrogated claimant may sue in his own name but not in the latter. I believe that in this passage the judge inadvertently referred, on three occasions, to an original debtor when he meant, as is obvious from the context, to refer to the original creditor:-
"23 In the case of Subsisting Rights Subrogation, it is necessary for the subrogated claimant to sue in the name of the original [debtor] creditor (as would ordinarily be the case in indemnity insurance, where there would be a clause to that effect in the insurance) or to join the original [debtor] creditor as a party to the proceedings. Examples of such a case are Smith v Mainwaring [1986] 2 Lloyd's Law Rep 244 and Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] 1 AC 643, where, in each case, the claim failed for lack of such joinder. In an Extinguished Rights claim, the subrogated claimant is pursuing its own rights (the original creditor's rights being extinguished because the debtor's obligation to it has been discharged in full) and is therefore permitted to sue in its own name and without joinder of the original [debtor] creditor: examples of such cases are Banque Financière de la Cité SA v Parc (Battersea) Ltd [1999] 1 AC 221, Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2003] 2 AER (Comm) 365 and Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759."
- Mr Richard Slade QC for Ds 1-4 submitted before us, as he had submitted before the judge, that extinguished rights subrogation is simply unavailable where the creditor's rights rather than being extinguished remain in suspense. That is, he suggests, the case here since Alliance does not accept that it was obliged to indemnify Reachcom and reserves the right to claim back the amount of which it was divested. He illustrated the principle by reference to cases of indemnity insurance which would of course be cases of subsisting rights subrogation rather than extinguished rights subrogation, but in which the essential first element is nonetheless out and out payment of the creditor by the party seeking to be subrogated to his rights. Thus in Wellington Insurance Co Ltd v Armac Diving Services Ltd [1987] 37 DLR (4) 462 an insurer denied liability to its insured for the loss of a boat but, on being sued, paid for one half of the loss by way of compromise. The insurer later sought to participate in the insured's recovery from a third party responsible for the loss. The British Columbia Court of Appeal held that subrogation does not arise unless the insurer makes a payment pursuant to its contract of indemnity with its insured. The court cited in support the decision of McCardie J in John Edwards and Co v Motor Union Insurance Co Ltd [1922] 2KB 249. In that case the judge said, at pages 254-5 that "subrogation springs not from payment only but from actual payment conjointly with the fact that it is made pursuant to the basic and original contract of indemnity". There payment had been made under an honour policy not binding in law and so could not be said to have been paid pursuant to a contract to indemnify. In both cases reference was made to the principle that subrogation is available if payment has been made honestly and in good faith under a valid policy in intended satisfaction of the obligation to indemnify, notwithstanding it may subsequently be shown that no such obligation had arisen – see King v Victoria Insurance Co Ltd (1896) AC 250. That is obviously not what occurred in this case. Payment was not made voluntarily at all but was extracted by the creditor Reachcom in reliance upon an instrument the validity of which Alliance does not accept and which it has already challenged in the Almaty court. Alliance, submitted Mr Slade, needs to demonstrate both payment and an acceptance of the validity and/or efficacy of that payment. This, suggested Mr Slade, led to two conclusions. Firstly, there having been no payment accepted to be valid or efficacious, subrogation is simply unavailable. Secondly, since the uncertain status of the payment necessarily leads to uncertainty whether Reachcom's rights against D3 and D4 have in fact been extinguished, there could in any event be no question of extinguished rights subrogation so that the failure to join Reachcom as a party to the proceedings is fatal to the cause of action, just as in Smith v Mainwaring and Esso Petroleum v Hall Russell. Mr Slade accepted that it is sufficiently arguable at this stage of the proceedings that D3 and D4 authorised or ratified the satisfaction by Alliance of their debts to Reachcom. That however has no bearing on the question whether Reachcom's rights against D3 and D4 have in fact been extinguished. Mr Slade also submitted that an additional reason why Reachcom had to be a party to the exercise by Alliance of subrogated rights is that, in terms of the Loan Agreement, Alliance cannot be a "successor" to Reachcom as successor is there defined and it is only the Lender and its successors who can enforce the agreement.
- Mr Toledano takes issue with Mr Slade's submissions but suggests that Alliance's claim to be subrogated raises substantial questions of law and fact which are unsuitable for determination at this stage. He therefore supports the approach of the judge that Alliance has established that there is a serious issue to be tried. He submits that discharge of the debts of D3 and D4 has occurred either by compulsion under the guarantees or by reason of authorisation or ratification by Ds 3 and 4. This as it seems to me does not meet the gravamen of Mr Slade's objection which is that Alliance disputes the obligation to indemnify, albeit not expressly in this action, and has reserved its ability to recover the payment. Authorisation and/or ratification by Ds 3 and 4 of the discharge of their debt is irrelevant to the ability of Alliance to recover the payment. The payment to Reachcom is not therefore irrevocable. It is no answer to that point to assert, as Mr Toledano does, that a voluntary payment is good enough in extinguished rights subrogation provided that it has discharged the borrower's liability to his creditor. A voluntary payment must in that context denote an out and out payment, not one in respect of which the payer reserves the right of recovery. Mr Toledano seeks support from the decision of this court in Filby v Mortgage Express Ltd [2004] EWCA Civ 759, but in my judgment it does not assist him. A mortgage fraud committed by Mr Filby on both his wife and the mortgagee had the effect that the mortgage was not binding on Mrs Filby. £60,000 of the advance was used by Mr Filby's solicitors on his instructions to reduce a debit balance on an unsecured bank account held jointly by Mr and Mrs Filby at Midland Bank. Mortgage Express, the mortgagee, was held entitled to be subrogated to Midland Bank's right to recover the unsecured debt from Mrs Filby so as to reverse what would otherwise be the unjust enrichment of Mrs Filby. If invalidity of the mortgage was there no bar to a subrogated recovery, then neither should invalidity of the guarantee here, submitted Mr Toledano. However there is in my judgment no proper analogy. Mortgage Express did not suggest that its payment could be recovered from Midland Bank. The invalidity of the instrument pursuant to which Mortgage Express made the advance to Mr and Mrs Filby's solicitors on their behalf could not have that effect. Here, by contrast, the efficacy of the payment to Reachcom is put into question. If Alliance can reverse it, Reachcom's rights against Ds 3 and 4 will revive even if, which I doubt, they are currently extinguished.
- Mr Toledano submitted that it is sufficiently arguable that for the purposes of subrogation the moment a payment is made by the guarantor to the creditor, provided that it is a payment that has been authorised or ratified by the borrower, at that moment the debt has been discharged and by legal fiction the rights are transferred to the guarantor. He accepted that there is no clear analysis to be found in the authorities of what would be the position if the money had for some reason to be paid back, and he accepted also the possibility that the creditor's rights might at that point revive. That did not however, he submitted, detract from the conclusion that there is a serious issue to be tried whether at the moment of payment the guarantor acquires rights through extinguished rights subrogation.
- That submission does not in my judgment address the question that arises where the efficacy of the payment or the basis on which it is made is in issue at the very moment when it is made. In the present case, as pointed out by Lloyd LJ in the course of the argument, payment was not made by the guarantor, rather it was effected by the realisation of security given pursuant to the guarantee and it was effected by the creditor in his own favour. The whole validity and/or efficacy of that exercise, and thus whether a payment has been made, must depend upon the validity of the guarantee. Alliance pleads, at paragraph 84 of its Particulars of Claim:-
"Despite Alliance's protestations in correspondence (for example, Alliance's letter to Reachcom dated 30 April 2009 in which Alliance wrote that it had no knowledge of the guarantees and asked that enforcement be suspended as the guarantees had been entered into illegally), the encumbered securities were transferred out of the relevant custody accounts by Renaissance Securities and Metropol."
In these circumstances I have grave reservations as to the availability of subrogated rights and I am quite clear that such rights as may have arisen cannot be exercised in Alliance's name. At the very least, as it seems to me, the situation is one in which the position of the debtor, here Ds 3 and 4, can only adequately be protected by ensuring that Reachcom is bound by the outcome of the proceedings. Mr Toledano recognised that Alliance cannot implead Reachcom because Alliance is obliged under the guarantees to resort to arbitration under the auspices of the LCIA and any attempted joinder would be met by an application to stay.
- Mr Toledano suggested in his supplemental skeleton argument that the notion of Ds 3 and 4 being exposed to double jeopardy is wholly contrived in circumstances where Ds 3 and 4 are insolvent. With respect to Mr Toledano the acknowledged insolvency of Ds 3 and 4 to my mind indicates rather the contrived nature of the subrogated claim. It is simply an artificial device invoked to enable Alliance to rely upon an exclusive jurisdiction clause as rendering the English court the appropriate forum for the resolution of the dispute. The argument is the more contrived once it is accepted that the subrogated contractual claim cannot be maintained against Ds 6, 7 and 8, who may, unlike Ds 1-4, have assets. In VTB at paragraph 95 this court observed that "There is no good policy reason for inventing and giving [VTB] an artificial remedy in contract which VTB does not need, but which it merely invokes in support of its claim that the English court should assume jurisdiction in its claims". That observation is equally applicable here. Insofar as Alliance needs a remedy in contract against the avowedly insolvent offshore SPVs, and if its factual assertions are well founded, it has a perfectly sound and orthodox cause of action in implied contract, pleaded at paragraph 110 of the Particulars of Claim:-
"Further or alternatively, since the Guarantees and the security were provided by Alliance to the Lenders at the express alternatively implied request of the Offshore SPVs and/or the Brothers and since Alliance has (albeit against its will and despite its protests) been compelled to discharge the obligations of the Offshore SPVs to the Lenders, Alliance is entitled to an indemnity from the Offshore SPVs and/or the Brothers in the amount of all sums paid to the Lenders to discharge the Reachcom and Metropol loans."
By the same token, if its factual assertions are well founded, Alliance has a perfectly good remedy against Ds 6-8 in one or more of the torts or delicts which it has alleged against them.
- Prompted by an observation of Lloyd LJ that the court might in this situation decide that Alliance could only proceed without joining Reachcom if it unequivocally accepted the validity of the guarantees and the claims made under them, Mr Toledano indicated the willingness of Alliance to offer, if required by the court as a condition of assuming jurisdiction, an undertaking not to pursue any claim against Reachcom in respect of the guarantees.
- An undertaking was duly formulated in writing before the end of the hearing and offered in the shape of a Witness Statement by Angela Taylor of Alliance's solicitors, Messrs Slaughter and May, in the following terms:-
"I have instructions from Alliance's Board of Directors that, if the English Court of Appeal accepts Alliance's appeal and confirms that the English courts have jurisdiction in respect of Alliance's claims against the 1st-4th and 6th-9th Defendants, Alliance is prepared (if so ordered) to undertake not to initiate any civil proceedings in any jurisdiction against Reachcom at any stage following the provision of the undertaking. It will be our Counsel's submission that this undertaking is not necessary, but if the court disagrees then Alliance is willing to give it."
It was accepted in argument by Mr Toledano that what was intended was a reference to this court both confirming that the English court has jurisdiction and agreeing to exercise it. It was further accepted that the reference to civil proceedings is intended to comprise also arbitration proceedings.
- I do not consider that a conditional undertaking in this form assists Alliance. In my judgment Alliance has in its own name no cause of action under the Loan Agreements against Ds 3 and 4 as demonstrated by cases such as Smith v Mainwaring and Esso Petroleum v Hall Russell and as is in any event axiomatic. It had no such cause of action when it issued its Claim Form and/or when it applied for permission to serve outside the jurisdiction. Mr Toledano's response to this point is to reiterate his argument that the right to subrogation accrued the instant that Ds 3 and 4's obligation to repay Reachcom was discharged by payment by Alliance to Reachcom. That, with respect, begs the question. If the efficacy of the payment were not in doubt the undertaking would not be required.
- In these circumstances I need not discuss further the many and varied objections raised by the Respondents as to the form of the undertaking. It is not unusual in the context of contested applications for permission to serve out of the jurisdiction or for a stay of proceedings otherwise duly brought by service within the jurisdiction for the court to accept undertakings of one sort or another, usually directed towards the conduct of the proceedings here or of proceedings overseas or involving a submission to another jurisdiction. It must not however be forgotten that as long ago as 1885 Pearson J observed in Société de Générale de Paris v Dreyfus Brothers (1885) 29 Ch D 239 at page 242:-
". . . It becomes a very serious question, and ought always to be considered a very serious question, whether or not, even in a case like that, it is necessary for the jurisdiction of the court to be invoked and whether this court ought to put a foreigner, who owes no allegiance here, to the inconvenience and annoyance of being brought to contest his rights in this country and I for one say, most distinctly, that I think this court ought to be exceedingly careful before it allows a writ to be served out of the jurisdiction. "
Those observations remain true today. For my part, I consider that the circumstances would be very rare in which the court will be prepared in this context to permit a claimant to perfect or to complete his cause of action by reliance upon an undertaking, let alone an undertaking in conditional form. This is the more so where the undertaking is dependent upon the court assuming jurisdiction over causes of action other than that which requires perfection, a fortiori where those different causes of action are asserted against different overseas parties, not those immediately affected by the defective cause of action in respect of which the undertaking is proffered.
- For all these reasons therefore I have concluded that there is no basis upon which service out of the jurisdiction should have been permitted in respect of Alliance's subrogated contractual claims against D3 and D4.
- This conclusion fundamentally changes the landscape against the background of which Burton J's exercise of discretion concerning appropriate forum falls to be examined, for it deprives Alliance of reliance as a matter of contractual entitlement upon the exclusive jurisdiction clauses in the Reachcom loan agreements. However before turning to appropriate forum I must next deal with Alliance's belated reliance upon its cause of action in implied contract as justifying the grant of permission to serve Ds 1-4 out of the jurisdiction.
Implied Contract
- I have already set out paragraph 110 of the Particulars of Claim in which the claim in implied contract is pleaded. Mr Toledano submits that the application made before us to permit service out of the jurisdiction on this basis is unnecessary and that Teare J has already granted permission to serve this claim upon Ds 1-4 out of the jurisdiction. This is plainly incorrect so far as concerns D3 in respect of which Teare J was neither asked for nor granted permission to serve out of the jurisdiction. So far as concerns Ds 1, 2 and 4, it is true that Teare J's Order of 5 April 2011 records that the Applicant has permission to serve the Claim Form and Particulars of Claim on them outside the jurisdiction pursuant to CPR 6.36. It is however trite that permission to serve outside the jurisdiction only extends to those causes of action which the applicant for permission has identified in its application as satisfying the relevant criteria prescribed under CPR 6.37 and paragraph 3.1 of PD 6B – see Metall und Rohstoff AG v Donaldson Lufkin and Jenrette Inc [1990] 1 QB 391 at page 436 per Slade LJ. This principle is unaffected by the Supreme Court having indicated in NML Capital Limited v Republic of Argentina [2011] 3 WLR 273 that the rule in Parker v Schuller (1901) 17 TLR 299 should no longer be followed. It is one thing to "set up another distinct cause of action which was not before the judge upon the original application", which may now be allowed. However in order so to do the applicant needs the indulgence of the court. The permission to serve out of the jurisdiction is limited to causes of action for which it was sought unless and until extended. Here the evidence in support of the application was the affidavit of Angela Taylor dated 4 April 2011. Her affidavit identified the loan agreements between Reachcom and Ds 3 and 4 and between Metropol and Ds 1 and 2 and the guarantees given by Alliance to both Metropol and Reachcom and then continued:-
"55. First, Alliance's claims against the Fifth to Fifteenth Defendants arise out of and are in respect of the loan agreements. It was those agreements by which the Defendants (as part of a fraudulent conspiracy) gained approximately US$1 billion. Also, when the Offshore SPVs defaulted, Alliance was required by those agreements to satisfy the obligations thereunder to Reachcom and Metropol.
56. It is clear that the Offshore SPVs were mere shells and facades used by the Brothers to effect the fraud and embezzle money from Alliance. It is, therefore, wholly artificial to regard those loan agreements as merely between the Lenders and the Offshore SPVs. It was the Brothers who instructed and made the Offshore SPVs the parties to the loan agreements solely to obscure their own involvement in the scheme. Moreover, all of Alliance's claims are claims which arise out of or are in connection with those underlying agreements.
57. This claim is therefore brought before the English court as against all Defendants, as claims in respect of contracts which are (a) subject to English law and (b) subject to the English court's jurisdiction to determine any dispute arising out of those contracts. This, in my submission, means these claims fall within PD 6B 3.1(6)(c) and (d).
Necessary or proper parties
58. Secondly, and on any view, Serbina is being served within the jurisdiction, and all the claims against the Offshore SPVs are plainly claims in respect of those Loan Agreements. Accordingly, even if some claims were not "in respect of a contract", the remaining defendants are nevertheless necessary or proper parties to those claims against the Offshore SPVs, in accordance with Practice Direction 6B 3.1(3). The test is alternate – i.e. it is enough that the parties are necessary or proper.
a. The remaining defendants are proper parties to the claims against the offshore SPVs. Were all the Defendants based in England it would be necessary and proper for all to be party to the same action:
i. All the Defendants were part of a fraudulent conspiracy (i) to use unlawful means, and/or (ii) with the specific intent to divert funds from and defraud Alliance;
ii. Equally, the trust claims have – at their heart – the diversion of assets by means of the loan agreements with the Offshore SPVs, in which the remaining Defendants dishonestly assisted and/or knowingly received trust assets; and
iii. It is necessary in order to trace the assets that all the Defendants are before the same court."
I do not read either the first sentence of paragraph 55 or the first sentence of paragraph 58 as containing any reference to the claim pleaded at paragraph 110 of the Points of Claim. Firstly, those claims are not plainly claims in respect of the Loan Agreements – they are claims brought under a quite different contract, the implied contract arising from the request to Alliance to provide guarantees to the lenders. They are therefore for the purposes of the service out regime claims in respect of (and more accurately, claims under) the implied contracts, not claims in respect of the loan agreements – see Cecil v Bayat [2010] EWHC 641 (Comm) and Global 5000 v Wadhawan [2012] EWCA Civ 13. Nor in my judgment does it assist Mr Toledano to submit that insofar as the claims to indemnity in paragraph 110 are maintainable in restitution or quasi contract, they are claims "in respect of" the loan agreements. So analysed, they are in my judgment more naturally described as claims in respect of the guarantees rather than in respect of the loan agreements. As Lewison LJ put it in Wadhawan, one does not start with a contract over which the court has jurisdiction and then bolt claims on to it, rather one starts with the claim which is the focus of CPR 6.37(1) and paragraph 3.1 of the Practice Direction. As Rix LJ pointed out in the same case, it is a matter of legal categorisation. The second reason why I do not regard the first sentence of paragraph 58 of Miss Taylor's affidavit as referring to the claims pleaded in paragraph 110 of the Points of Claim is because it is plain from that and the next sentence that the claims made in that paragraph against Ds 6-8 are not under discussion, as the claims swept up in the next sentence of paragraph 58 are those which might get through the necessary or proper party gateway rather than the in respect of a contract gateway.
- In his post-hearing written submissions Mr Toledano suggests that the "indemnity" claim, i.e. the claim pleaded in paragraph 110 was clear from the pleadings which were before Teare J and was explicitly mentioned in Alliance's without notice skeleton argument of 1 April 2011 as requiring permission to serve out. Reliance is placed upon paragraph 97 of the skeleton which reads:-
"(a) Subrogation / Contribution / Indemnity
Alliance has been compelled to discharge the obligations of the offshore SPVs to the Lenders under and by virtue of agreements which are expressly governed by English law. That entitled Alliance to step into the shoes of the Lenders and enjoy claims against the offshore SPVs and the Brothers (who use the offshore SPVs as mere devices, façades, alter egos or nominees). Whatever the precise juridical nature of the claim to indemnity, subrogation and contribution in these circumstances the claims plainly have an extremely close nexus to the contracts which they arise out of or relate to. These claims are obviously "in respect of" contracts governed by English law (or which include English jurisdiction clauses) as that phrase has been expansively interpreted in the case law. It is submitted that Alliance has the better or much the better argument on that score."
Again, I do not read this paragraph as extending to the claims pleaded in paragraph 110 of the Points of Claim. This is again a reference to the subrogated claims under the loan agreements. The reference to contracts "which include English jurisdiction clauses" could not be more clear. The reference to contracts governed by English law does not assist since again this is obviously a reference to the express choice of law clauses. Had the implied contracts pleaded in paragraph 110 been in mind, there would surely have been some attempt to explain why the implied contracts should be regarded as governed by English law by process of attraction from the express choice of law in the contracts of guarantee out of the request to provide which the implied contract to indemnify springs.
- CPR 6.37 no longer requires, as did RSC O.11 Rule R.4(1), that the application must be supported by written evidence. Now, rather, the application for permission must "set out" the relevant material, including a statement as to the claimant's belief that the claim has a reasonable prospect of success. The notes to CPR 6.37 give guidance as to how the evidence may be given. I do not rule out that it may sometimes be convenient and appropriate for matters such as the identification of the ground in paragraph 3.1 of the Practice Direction upon which reliance is placed to be clarified or supplemented in the skeleton argument placed before the judge on the ex parte application, but it is not best practice. The formal material ought ideally to be found in one place, which can always be amended if initially defective. It goes without saying that the identification of causes of action and their corresponding gateways should be explicit. Identification by implication is not enough.
- It follows that insofar as the Claimant wishes to rely as against Ds 1-4 upon the causes of action pleaded at paragraph 110 of the Points of Claim, it does not as yet have permission to pursue those claims against parties served out of the jurisdiction, i.e. Ds 1, 2 and 4, and it is accepted that D3's submission to service upon it within the jurisdiction does not extend to these claims.
- Mr Toledano's application on day 4 of the hearing before us was limited to reliance upon implied contract, although that was because of his mistaken assumption that insofar as the claims pleaded in paragraph 110 are in restitution or quasi contract, permission to serve out had already been granted – see transcript day 4 page 60. Reliance was placed upon Article 3.1 of the Rome I Convention which provides:-
"A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contact or the circumstances of the case. By their choice the parties can select the law applicable to the whole or part only of the contract."
Mr Toledano submitted that one can be reasonably certain that the circumstances in which the implied contracts came into being, compliance with a request to put up guarantees, show that the parties thereto, Alliance and Ds 1-4, chose English law as the law governing this implied obligation just as English law is the law expressly governing the express guarantees into which Alliance on request entered with Reachcom and Metropol. Article 4 of the Convention provides, so far as relevant:-
4.1 To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has closer connection with another country may by way of exception be governed by the law of that other country.
4.2 Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or in the case of a body corporate or unincorporated, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.
. . .
4.5 Paragraph 2 shall not apply if the characteristic performance cannot be determined and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country."
Article 4.2 would point to the BVI or Samoa but, submitted Mr Toledano, the presumption required by that Article would be displaced here because it appears from the circumstances as whole that the implied contracts are more closely connected with the suite of contracts with which they are inextricably bound up, the loan agreements and the guarantees, all expressly governed by English law.
- Mr Slade for Ds 1-4 submitted that the court should not entertain this application. He put forward two distinct objections. First, he pointed out that before Burton J there had been debate whether Alliance could successfully invite the court to infer that there must have existed loan agreements between Metropol and Ds 1 and 2 other than in the form before the court. The judge rejected that invitation. That was, suggested Mr Slade, the moment at which Alliance ought to have relied upon the implied contractual claim as arguably entitling it to maintain against Ds 1 and 2 the permission granted to serve them out of the jurisdiction. Similarly, he reminded us that Alliance had applied to Burton J for permission to serve D3 out of the jurisdiction and there was ample opportunity then to rely upon this alternative cause of action. Secondly, Mr Slade submitted that Ds 1-4 were placed at a disadvantage in that they had not hitherto had cause to investigate the circumstances of the case with an eye to their impact upon the proper law of an implied contractual obligation. On the merits, Mr Slade submitted that there was in any event no serious issue to be tried that any implied contract between Ds 1 and 2 would be subject to English law, bearing in mind that the judge had refused to infer that any Metropol Loan Agreements with Ds 1 and 2 pursuant to which money rather than STRIPS was lent must contain an express choice of English law.
- This last point was made in Mr Slade's post-hearing written submissions. It overlooks that there was in evidence before Burton J a form of guarantee executed by Alliance in favour of Metropol which apparently guaranteed due performance by D1 of "the loan contracts" between Metropol and D1. Although the judge refers, at paragraph 28 of his judgment, to those guarantees as not being "in exactly the same terms as the Reachcom guarantees" they are in fact in markedly different and shorter form. Clause 2 thereof purports to place certain STRIPS in the ownership of Alliance at the disposal of Metropol not expressly by way of security but rather so as to invest Metropol with "all rights on the above named US STRIPS, including the right to lend [them] to the above mentioned Aquanta Corporation for the term of [blank] or alienate them at [Metropol's] own discretion by selling, exchanging or in another way". This form of guarantee contains an express choice of English law and an agreement to submit disputes arising out of or in connection therewith to arbitration under the auspices of the LCIA. There is no doubt, at any rate for present purposes, that on 2 February 2009 the relevant STRIPS were debited from the custody account held by Alliance with Metropol. Nonetheless, Alliance having abandoned any reliance upon the Metropol Loan Agreements so far seen for the purpose of establishing its right to pursue a subrogated claim against Ds 1 and 2, it would not in my view be appropriate, in the circumstances which have arisen, to permit Alliance without more to rely upon the associated Metropol guarantees, which seem themselves to contemplate that the lending to D1 will be of STRIPS, not of money. The Reachcom guarantees and loan agreements plainly hang together as inter-dependent transactions. There is no reason to believe that there are not in existence similarly inter-dependent Metropol guarantee and loan agreements, and the Metropol guarantee and loan agreement which are in evidence are indeed inter-dependent in that the guarantee confers or purports to confer a power upon Metropol to lend Alliance's STRIPS to D1. However, Alliance has abandoned reliance upon the Metropol agreement in this form and it seems to me artificial that it should be permitted, particularly at this late stage, to rely, albeit for a different purpose, upon the inter-dependent guarantee which apparently suffers from the same vice in that it contemplates lending of securities not of money. In making that observation I do not overlook the general reference to "loan contracts between the Debtor and Broker" but such contracts are not identified. Accordingly, I would conclude that Alliance has not at this stage demonstrated a sufficiently arguable case that, at the request of D1 or D2, it executed in favour of Metropol a relevant guarantee of the performance of D1 and D2, which guarantee contained an express choice of English law as the governing law. There is therefore no basis upon which an implied contract of indemnity, itself arguably governed by English law, may arguably have come into existence.
- That leaves for consideration the claim in implied contract against D3 and D4. Whilst I have sympathy with the notion that Alliance has had every opportunity to pursue this claim at an earlier stage of the litigation, I do not consider that D3 and D4 are prejudiced in the manner suggested. For my part I regard it as virtually axiomatic that in the absence of some very unusual feature an implied indemnity of the sort here relied upon will be governed by the same law as the contract the entering into of which generated the indemnity, at any rate where the requested contract contains an express choice of law. The choice is expressed or demonstrated with reasonable certainty by the mere circumstance that, here, the guarantor enters into a contract in that form at the request of the debtor. The implied indemnity can be regarded as collateral to the express guarantee. The choice of English law as governing the collateral contract is clearly demonstrated where the requested guarantee contains an express choice of law. I regard the situation as analogous to that which was discussed in Golden Ocean Group Limited v Salgaocar Mining Industries PVT Limited [2012] EWCA Civ 265, which concerned the implied proper law of a contract whereby an agent warrants the authority of his principal. The Court of Appeal concluded that the implied contract of warranty of authority is governed by the same law as the proposed or putative contract to which it is ancillary or collateral. See also the discussion in Dicey Morris and Collins, Conflict of Laws, 15th Edition, at paragraph 33-457. If that be wrong, the circumstances as a whole demonstrate a closer connection with the country whose law has been chosen as the law governing the principal contract than with any other country – Article 4.5. I consider it most unlikely that any investigation by Ds 3 and 4 into "the circumstances of the case" would throw up any feature sufficient to displace the inference that the parties intended both contracts to be governed by the same system of law. Furthermore, the decision of the Supreme Court in NML Capital v Republic of Argentina, 2011 3 WLR 273, disapproving the rule in Parker v Schuller (1901) 17 TLR 299, has heralded an approach to validating service out of the jurisdiction on a basis other than that initially relied upon which is somewhat less rigid and more generous than that which has hitherto held sway. Subject therefore to the question whether England is shown to be the appropriate forum, I would permit service by Alliance on Ds 3 and 4 out of the jurisdiction of the claim in implied contract pleaded at paragraph 110 of the Particulars of Claim.
- When Mr Toledano on day 4 introduced his application to be permitted to serve out of the jurisdiction on this basis, Elias LJ enquired of him whether it might have any impact on the other Defendants (sc Ds 6-9) on the necessary or proper party basis, or whether the application was only of concern to Ds 1-4. Mr Morgan for his part noted that the application had not been served on the solicitors to D6 as if to suggest that D6 was affected by it. He expressly noted that it had not been suggested that "we are going to be dragged into it as necessary parties", by which I understood him to mean that it was not suggested that service by this means would afford to Alliance an additional basis upon which it could assert that Ds 1-4 were "anchor defendants". It was not therefore suggested at that stage that the claims in implied contract against Ds 3 and 4 were claims to which D6 is a proper party for the purpose of the pursuit against him of the non-contractual causes of action – see transcript day 4, page 58. Mr Toledano did not demur. Having shortly developed his application he moved on to his reply to the other parties' submissions about gateways under Practice Direction 6B. He did not expressly suggest that service upon Ds 3 and 4 pursuant to the new basis, if it stood alone, would constitute Ds 3 and 4 anchor defendants for the purpose of seeking to join other defendants as proper parties to that claim. He did however submit, without any express reference to the implied contractual claims, that Ds 1-4 are all served under the "in respect of a contract" gateway for all claims. If the ability of Alliance to join Ds 6-9 as defendants to the action were dependent upon service upon Ds 3 and 4 as anchor defendants in reliance solely upon the claims in implied contract, the position reached would I think be rather unsatisfactory. At the very least, I might think it necessary to invite further argument on this limited basis. As it is, I do not consider that this point ultimately arises. I will return to it in the context of discretion. Before doing so, I must deal with the other arguments raised by the Defendants as regards the gateways under Practice Direction 6B.
Gateways more generally
(i) Gateway (6)
- Practice Direction 6B provides:
"3.1 The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where –
. . .
Claims in relation to contracts
(6) A claim is made in respect of a contract where the contract-
(a) was made within the jurisdiction;
(b) was made by or through an agent trading or residing within the jurisdiction;
(c) is governed by English law; or
(d) contains a term to the effect that the court shall have jurisdiction to determine any claim in respect of the contract."
- In the light of my conclusion as to the unsustainability of the subrogated claims, and putting on one side the point just discussed as to the claims in respect of implied contract, the next question which arises is whether the non-contractual claims against all of the active defendants can for the purposes of the gateways be regarded as claims made in respect of a contract and, if so, in respect of which contract, a Reachcom contract of loan or an Alliance-Reachcom contract of guarantee? The latter question is arguably relevant to discretion and appropriate forum as the Reachcom loan agreements contain an exclusive English jurisdiction clause (and an express choice of English governing law) whereas the Alliance-Reachcom guarantees contain an English arbitration clause and an express choice of English governing law.
- The judge concluded at paragraph 50 of his judgment that all of the non-contractual claims against Ds 1-4, 6, 7 and 8 were claims in respect of a contract. Paragraph 50 reads:-
"With regard to the remainder of the claims, it has been now on a number of occasions made clear, since Albon v Naza Motor Trading [2007] EWHC 327 (Ch) (per Lightman J) that the claim, in respect of which service out is sought, does not have to be a claim to enforce a contract, or even a claim by a party to the contract. The words "a claim is made in respect of a contract" are very wide. Thus, in Cecil v Bayat, Hamblen J concluded that a conspiracy claim before him was such a claim. Teare J stated, in Greene Wood & McLean v Templeton Insurance Ltd [2008] EWHC 1593 (Comm) that "some connections will be more remote than others. But the fact that a connection is remote will not … prevent the claim from being "in respect of a contract", though the remoteness of the connection will no doubt be a factor to bear in mind when the court considers whether England and Wales is the "proper place" in which to bring the claim". I conclude that the gateway requirement under 6B PD 3.1(6)(c) and (d) is satisfied in this regard also. There is a good arguable case that the claims made by the Claimant both have merit (insofar as that is required by reference to the words of Hamblen J) and are within the gateway."
There was some debate before us as to whether the judge intended to include Ds 1 and 2 within this conclusion, but in my judgment it is clear from paragraph 60 of his judgment that he did. Paragraph 60 reads:-
"If I had not concluded that the gateway provision was satisfied in respect of the Fourth, Sixth, Seventh and Eighth Defendants in respect of the subrogated claims, I would have concluded that the Third Defendant was an appropriate anchor defendant for the purposes of the proper or necessary party gateway, and if I had not concluded that the gateway provision was satisfied in respect of all the active Defendants in respect of the balance of the causes of action, as set out in paragraph 50 above, then I would have concluded that the Third Defendant and the Fourth, Sixth, Seventh and Eighth Defendants would have been appropriate anchor defendants."
Since the judge regarded all the claims as satisfying both sub-paragraphs (c) and (d) of paragraph 3.1(6) of Practice Direction 6B, it must follow that he regarded all the claims as being made in respect of the Reachcom loan agreements since no other relevant contract contained an English jurisdiction clause. Miss Taylor's affidavit in support of the application for permission to serve out did not suggest that reliance was placed upon any contracts other than the loan agreements for the purpose of satisfying gateway 6. Mr Toledano maintained that this is the correct analysis. However, he pointed to the fact that in the skeleton argument deployed before Teare J on the ex parte application reliance had been placed upon both the loan agreements and the guarantees as being contracts in respect of which the non-contractual claims against all the Defendants were made and suggested that Alliance was therefore entitled to put its case on this basis in the alternative. Mr Toledano also submitted that the non-contractual claims against Ds 1 and 2 were claims in respect of the Metropol loan agreements, notwithstanding those agreements do not appear to make sense commercially. That is plainly not how Burton J saw it since he considered that all the non-contractual claims satisfy both sub-paragraphs (c) and (d) of paragraph 3.1(6) and the Metropol loan agreements contain an express choice of English law but only an arbitration provision, not an agreement to English jurisdiction. Mr Toledano submitted in the alternative that because Alliance alleges one overarching conspiracy the claims against Ds 1 and 2 could also be regarded as made in respect of the Reachcom loan agreements. That may now be his alternative case but it is the case which succeeded before Burton J.
- Mr Morgan submitted that the judge had here fallen into error. He submitted that for these purposes a claim in respect of a contract is one where the effect of the contract has some legal nexus to the claim made. It is insufficient, he submitted, to identify a mere factual nexus such as that the Reachcom loan agreements are one step in the mechanism by which the money allegedly went out of Alliance and went back to the Defendants, or some of them. What is required, he suggested, is some legal nexus in addition to the factual nexus. Mr Morgan submitted that a common thread running through the authorities bearing on this point, and where resort to the gateway has been permitted, is that, although the claimant is not suing on or under the contract, he is suing in order to enforce a contractual right or a right which has arisen for non-performance of the contract. It is for that reason the claim is regarded as being made in respect of a contract. Here the gist of Alliance's claims in conspiracy is that D6 conspired with others to divert money from the company in which he was an indirect shareholder, and, for some of the relevant time, was Chairman of the Board of Directors. The loan agreements are simply part of the factual mechanism, along with numerous other steps, by which that diversion is said to have taken place. A similar analysis should, he suggested, be applied to the trust and unjust enrichment claim.
- I consider first the non-contractual claims asserted against Ds 1 and 2. I do not consider that it avails Alliance to rely upon the Metropol Loan Agreement and Guarantee which are in evidence. It is not demonstrated that those agreements are of any relevance to the lending by Metropol to Ds 1 and 2 or the subsequent appropriation by Metropol of the Alliance STRIPS on their alleged default. The claim is pursued on the basis that there must be other relevant contracts which are as yet undisclosed. However I also consider that it is artificial in the extreme to allege that the non-contractual claims asserted against Ds 1 and 2 are made in respect of the Reachcom loan agreements with Ds 3 and 4. It may have been an overarching conspiracy, but if any alleged conspirator is said to have been a party to a contract which is said to have been part of the mechanism by which the conspiracy was performed, it is surely more natural to regard a claim in respect of the conspiracy, if it is in respect of a contract at all, as made in respect of a contract to which the conspirator was party rather than in respect of a contract to which it was a stranger. One is looking for a contract which gives a jurisdictional link with the intended defendant out of the jurisdiction. The situation is akin to that considered by Rix LJ at paragraph 64 of his judgment in Global 5000 Limited v Wadhawan [2012] EWCA Civ 13 where it would be "highly anomalous that jurisdiction could be obtained against a defendant not within the jurisdiction by reference to a contract to which he was not a party", albeit that remark was made in the context of a (hypothetical) case where the claim was made under a contract which did not meet the jurisdictional gateway test because not governed by English law but the claimant sought nonetheless to found jurisdiction by reference to a related contract to which the contract under which the claim was made was ancillary which related contract did meet the jurisdictional gateway test because expressly governed by English law. I consider therefore that if the non-contractual claims made against Ds 1 and 2 can properly be regarded as made in respect of a contract at all, that contract has not as yet been identified and cannot be shown to have been governed by English law or to contain an English jurisdiction clause.
- I consider next the non-contractual claims against D3 and D4. The claim against them in tort or its Kazakh equivalent is certainly connected with the implied contract to which they were party which arose from their request to Alliance to guarantee their indebtedness. That is a much closer link than the relationship between the allegedly tortious conduct of D3 and D4 and the Reachcom loan agreements. It was not the borrowing by D3 and D4 which resulted in Alliance losing its money, it was the circumstance that D3 and D4 requested Alliance to guarantee the borrowing. Reliance upon the Reachcom loan agreements is simply an artificial contrivance, particularly since those are not contracts under which Alliance derives any benefit or which it is in a position to enforce. The claim under consideration is by definition not one to enforce the implied contract. I propose to defer the question whether it is a claim made in respect of that contract until I have examined the meaning of that phrase in a wider context. However this is not the basis upon which permission to serve the non-contractual claims on D3 and D4 was sought, since the implied contracts of indemnity had not been identified as relevant to the application. Subject to the making of a formal application it might be appropriate to permit reliance upon this analysis if it is otherwise available. Again however I would not without further argument permit service out upon Ds 3 and 4, "validated" upon this basis, to constitute Ds 3 and 4 anchor defendants for the purpose of bringing in other defendants as necessary or proper parties.
- I turn then to the non-contractual claims against Ds 6-9. The suggestion that these claims are, for the purposes of gateway 6, made in respect of the Reachcom loan agreements goes, I believe, further than anything yet envisaged in the decided cases on the gateway in its current form. It should not be overlooked that there is in any event a gateway, gateway (9), which confers jurisdiction in respect of certain claims made in tort, those where damage was sustained within the jurisdiction or the damage sustained resulted from an act committed within the jurisdiction. It is therefore open to question whether it is within the spirit and intent of the service out regime to construe the contract gateway in such a manner as to bring within its purview tortious conduct which does not qualify under gateway (9) and where the intended defendant has not in the course of that tortious conduct concluded a contract in circumstances and in terms which supply a relevant link with this jurisdiction. I note for example that in Dicey, Morris and Collins, 15th Edition, it is asserted at paragraph 11-179 that a claim for inducement of breach of contract is not for this purpose a claim made in respect of a contract, albeit the authority cited is a case decided in 1989 under the old Rules of the Supreme Court. Plainly the learned editors did not regard the authorities to which I shall shortly turn as compelling the rejection of this intuitive approach.
- The relevant gateway under the previous Rules of the Supreme Court contained in Ord. 11 r.1(1)(a) was that "The claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of the contract, being (in either case) a contract which . . . (iii) is by its terms, or by implication, governed by English law". As Rix LJ observed in Global 5000 at paragraphs 42 and 43, "This formulation, broad as it was, led to some uncertainty as to whether it justified claims which were ancillary to a contract, as distinct from under a contract. It may be observed, however, that the RSC formulation did not in terms use the language "under a contract". In the present formulation, under the CPR, the formula of "under a contract" is likewise avoided, but the language of the gateway is simple as well as broad, viz that "a claim is made in respect of a contract" which has the necessary connection with England such as being governed by English law". The new formulation is undoubtedly more broad than its predecessor. There is as yet little authority which assists as to its meaning and effect. Furthermore, as both Teare J and Longmore LJ observed in Greene Wood and McLean LLP v Templeton Insurance Limited [2009] 1 WLR 2013, the remoteness of the connection with the contract upon which reliance is placed is something which can be dealt with when the court considers whether England is the proper place for the claim to be brought – see per Longmore LJ at paragraph 19. Even so, I am intuitively resistant to the notion that gateway (6) can be used to justify service out of the jurisdiction by reference to a contract to which the intended defendant is not party. In such circumstances there is, as it seems to me, likely to be no sufficient link between the conduct of the intended defendant and this jurisdiction so as to justify the English court assuming an extra-territorial jurisdiction.
- Mr Toledano relied upon five cases in this regard. The first was Albon v Naza Motor Trading and Another [2007] 1 WLR 2489. Overpayments were made by C in performance of an agency agreement between C and D, which overpayments C claimed in restitution as monies paid under a mistake of fact. C applied for permission to serve D out of the jurisdiction, describing this as a claim made in respect of the agency contract. The argument before Lightman J was whether a claim in respect of a contract must be a contractual claim. It was held that it need not. Lightman J said this:-
"26. But in my judgment claims under Gateway 6.20(5) are not confined to claims arising under a contract. It extends to claims made "in respect of a contract" and the formula "in respect of" (tested by reference to English law) is wider than "under a contract": see e.g. Tatum v Reeve [1983] 1QB 44. The provision in the CPR is in this regard deliberately wider than the provision in its predecessor RSC Order XI . . .
27. Accordingly the formula of words in CPR 6.20(5) "in respect of a contract" does not require that the claim arises under a contract: it requires only that the claim relates to or is connected with the contract. That is the clear and unambiguous meaning of the words used."
The claim there arose out of a contract to which D was party.
- Next, Mr Toledano relied upon the decision of the Court of Appeal in Greene Wood and McLean v Templeton Insurance, to which I have already referred above. The claimant was a firm of solicitors which had acted for a number of coalminers under a Group Litigation Order. The defendant was an ATE insurer based in the Isle of Man, which had, it was alleged, agreed to indemnify the miners against costs orders. The defendant, Templeton, refused to pay out, resulting in the claimant satisfying the costs orders made against its client miners. The claimant, GWM, sought a contribution or indemnity from Templeton under the Civil Liability (Contribution ) Act 1978, on the basis that they and Templeton were both liable for "the same damage". GWM sought permission to serve Templeton out of the jurisdiction on the basis that the claim was made "in respect of a contract" even though GWM was not a party to that contract. Longmore LJ considered that the claim was indeed a claim made in respect of the ATE contract between Templeton and the miners. Longmore LJ, with whom the Master of the Rolls, Lord Clarke, and Hooper LJ agreed, held that for these purposes the claimant did not need to be a party to the contract in respect of which the claim is made, and he doubted whether it was even required that the defendant be a party to the contract in respect of which the claim is brought. Longmore LJ's reasoning was as follows:-
"17. . . . But can it be said that GWM's claim is a claim in respect of a contract? It is not a contract to which GWM are a party and the paradigm case of a contract pursuant to which permission is given under part 6.20(5)(c) is a contract between the intended claimant and the intended defendant. Indeed the notes to the rule in the White Book (6.21.34) do actually say that the contract has to be a contract between those parties. That is adopted by Mr Sweeting for the insurers who says that is not enough for only one of the parties to the intended action to be a party to a contract. Suppose that there is a contract to which only the intended claimant is a party and the defendant merely has a tortious or fiduciary obligation to the third party, would that be sufficient for the sub-rule to apply? That would be odd because the defendant would be brought before the court under a contractual provision of CPR 6.20 when he was not a party to a contract at all.
18. To say that, for a claim to be "in respect of a contract", it must be "in respect of a contract between the intended claimant and the intended defendant" is to add words to the rule which are not there. The commentary in Dicey, Morris and Collins, Conflict of Laws, 14th ed (2006) 11-182 to 11-184 does not suggest any such requirement. Moreover since the Contracts (Rights of Third Parties) Act 1999, Parliament has contemplated cases in which a third party can sue on a contract made between two persons for his benefit. If such a contract is governed by English law (or, even, made or broken in England) why should the third party not be able to take advantage of sub-rule (5)(c) of CPR 6.20? It would be odd if he could not and every reason to suppose that he should be able to utilise the sub-rule, always subject to the court being satisfied that England is the "proper place" in which to bring the claim, pursuant to CPR 6.21(2A).
19. The claim in the present case clearly has a connection with a contract governed by English law. To my mind that makes it a claim in respect of that contract even if it is not a claim brought under the contract. No doubt some connections with contracts are more remote than others but the present claim has a very close connection with insurers' contract with the miners to pay their costs and own disbursements if they lose. As the judge said the remoteness from the contract (if any) is something that can be dealt with when the court considers whether England is the proper place for a claim under CPR 6.21(2A).
20. I doubt if it would be any different if it was the intended claimant rather than the intended defendant who was a party to the contract in respect of which the claim was brought but I am content to leave that question to be decided in a case in which it actually arises."
Again therefore this was a claim made in respect of a contract to which the defendant sought to be served out of the jurisdiction was party. Whether an intended defendant out of the jurisdiction can properly be served with a claim in respect of a contract to which it is not a party was left open.
- Next, Mr Toledano relied upon Cherney v Deripaska [2010] 2 All ER (Comm) 456 in which the Court of Appeal held that the "in respect of a contract" gateway is wide enough to encompass a claim based on rights said to arise out of a contract even if those rights are of a proprietary nature and include allegations of constructive trust. It is true that Moore-Bick LJ said at paragraph 67 of his judgment that the words "in respect of a contract" are to be construed broadly, but that was in the context of a contract to which the intended defendant was party and moreover in the context of an argument whether the words were wide enough to encompass a claim based on rights said to arise out of that contract, even though those rights may be of a proprietary nature.
- Next, Mr Toledano relied upon the decision of Hamblen J in Cecil v Bayat [2010] EWHC 641 (Comm). Two of the claimants brought claims under contracts which did not have an English connection but argued that, since those contractual claims were related to contracts which did fall within the relevant criteria, that was sufficient. This was therefore, suggested Mr Toledano, the first "two contract" case. The claimants also brought claims for conspiracy, deceit and constructive trust. Hamblen J held, at paragraph 49, that, at least in respect of the contractual claims, some relevant legal connection is required between the claim and the contract said to fall within the jurisdictional gateway. He continued ". . . if that contract needs to be referred to and relied upon in order to assert the relevant cause of action then that requirement is likely to be satisfied since it will be a necessary part of the cause of action. However, a mere factual connection between the two contracts is not enough". As regards the conspiracy claims Hamblen J said this:-
"135. The jurisdictional gateways relied upon are:
(1) that the conspiracy claims are each "a claim in respect of", the Cecil and Bentham contract (the latter of which was made within the jurisdiction and/or is governed by English law, as above), 6BPD3.1(6)(a) and (c) and the Grinling contract. The claims are to deprive them of their contractual benefits and the contract does form a necessary part of that cause of action, although it is not its legal foundation. As such, I would, if necessary, be prepared to hold that the Cecil and Bentham claims are sufficiently connected to their contract to fall within this jurisdictional gateway and likewise Grinling with his contract. This, however, would not assist Lehmkuhl. As far as he is concerned the conspiracy is in respect of his contract, not that of Cecil and Bentham or Grinling. His contract was neither made in the jurisdiction nor subject to English law."
Hamblen J did not consider that the constructive trust or deceit claims fell within the "in respect of a contract" gateway because those claims were premised on there being no contract. What the judge said about the claim in conspiracy falling within gateways 6(a) and (c) was I think strictly obiter, since he also concluded that each claim qualified as a claim in tort where damage was sustained within the jurisdiction and so fell within the tort gateway, gateway (9). Moreover, of the three parties to the conspiracy upon whom he permitted service out of the jurisdiction, two, Bayat and TSI, were parties to relevant contracts with the claimants. The nature of the conspiracy was said to be to ensure that the claimants did not receive the shares to which they were entitled under those contracts. The third defendant out of the jurisdiction upon whom he permitted service in this respect, Warner, was not a party to those contracts, but the conduct alleged against him was that, in agreement with Bayat, he wrongly disposed of shares which he was holding on trust for the claimants. He was holding the shares on trust for the claimants because they were constituted shareholders by the agreement to which the claimants, Bayat and TSI, were party. It was therefore conduct closely related to the implementation of the contracts which it was the purpose of the action to enforce. Hamblen J's preparedness, albeit obiter, to treat the conspiracy claim against Warner as a claim "in respect of a contract" notwithstanding Warner was not a party to that contract is I think the high water mark of the assistance afforded to Mr Toledano by the authorities. Longmore LJ in Greene Wood and McLean v Templeton spoke in broad terms of a claim having a connection with a contract as rendering it, for these purposes, a claim in respect of that contract, but he was speaking only in the context of a contract to which the intended Defendant was party.
- Finally, Mr Toledano relied upon Global 5000 v Wadhawan to which I have already referred. The observations of Rix and Lewison LJJ were again obiter and moreover directed to a "two contract" case. Mr Wadhawan was sought to be made liable on an alleged guarantee which was collateral to a contract of sale between the claimant and Privilege Airways, a company of which Mr Wadhawan was Managing Director. The sale agreement contained an express English governing law clause. The question which arose was whether the claim under the guarantee against Mr Wadhawan could be said to be a claim in respect of the sale contract. In the event, the Court of Appeal agreed with the judge that the claimants had failed to show the existence of a serious issue as to the giving of the guarantee. The question whether therefore service of the claim under the guarantee could be justified under gateway 6 as a claim made in respect of the sale contract, which contained an express English governing law clause, did not arise. Nonetheless, in the two contract situation, Rix LJ, as I have already noted above, drew attention to the anomaly of obtaining jurisdiction against a defendant not within the jurisdiction by reference to a contract to which he is not party.
- It would I think be similarly anomalous were jurisdiction here to be established against Ds 6-9 in reliance upon contracts to which they are not party. The nature of the required connection between the claim and the contract in respect of which it is made is the more elusive in circumstances where the intended defendant is not party to the relevant contract. GWM was relying upon the contract between Templeton and the miners as generating the right to contribution under the Act, because it was the instrument under which Templeton was liable to the miners in the same way as GWM was liable to the miners. That is a straightforward connection.
- Furthermore, like Rix LJ in Global 5000, at paragraph 64 of his judgment, I wonder what is the relevance of sub-rule (d) of paragraph 3.1(6) of the Practice Direction unless it is implicit that the intended defendant is bound by that term and that agreement. Indeed I would go a little further, in that I wonder what is the relevance, for the purpose of founding jurisdiction, of the circumstance that the contract has been made within the jurisdiction, or made by or through an agent trading or residing within the jurisdiction, unless it is the intended defendant who has "come into" the jurisdiction to make the contract, or has used the services of an agent trading or residing within the jurisdiction for the purpose of making the contract.
- Notwithstanding the width of the language used by Longmore LJ in Greene Wood, plainly that case does not compel us to decide that connection of a claim with a contract to which an intended defendant is not party is a qualifying jurisdictional link under gateway 6. That point was left open. I am for my part attracted by the argument that a claim is not for that purpose properly described as "made in respect of a contract" where the contract in question is not one to which the defendant is party. For my part I see great force in the argument that it is implicit in the rule that the contract upon which reliance is placed must be one to which the intended defendant is party. I am also attracted by Mr Morgan's formulation which I would tentatively restate as follows:- unless the claimant is suing in order to assert a contractual right or a right which has arisen as a result of the non-performance of a contract, his claim is not in this context properly to be regarded as one made in respect of a contract. I think it likely that ordinarily such claims can only be made in respect of contracts to which the intended defendant is party. However the case of the intended defendant, Warner, considered by Hamblen J in Cecil v Bayat may show that that will not always be so. It is sufficient to dispose of the point in this case to indicate that the required connection between claim and contract must inevitably be the more difficult to establish in a case where the intended defendant is not party to the contract upon which reliance is placed than in a case where he is party to it. Longmore LJ was able to say in Greene Wood that the claim for contribution clearly had a connection with the Templeton contract which established the liability of Templeton to the miners, because that (contractual) liability was a prerequisite to Greene Wood claiming contribution from Templeton. Here there is in my judgment no clear connection, or no connection with any real content, between the claims in tort or delict against Ds 6-9 and the Reachcom loan agreements. Those agreements may be an incidental product of the conspiracy but it puts the cart before the horse to describe the claim in respect of the conspiracy as a claim in respect of the contracts to which it may, incidentally, have given rise. It would be more natural, but still in my judgment artificial, to regard the claim as made in respect of the contracts of guarantee between Alliance and Reachcom rather than the loan agreements between Reachcom and Ds 3 and 4, since it was by the former that Alliance was deprived of its money. Similarly, I consider that the claims in unjust enrichment against the wrongdoers who allegedly participated in the scheme to divert Alliance's assets and the equitable claims for dishonest assistance and knowing receipt arising from the breach of fiduciary duty that arguably occurred when the contracts of guarantee were executed have a closer affinity to those contracts than to the contracts of loan. In these cases too however the necessary connection between the claim and the contracts is in my view lacking. In none of these formulations is Alliance suing Ds 6-9 in order to assert a contractual right or a right which has arisen as a result of the non-performance of a contract.
- Where then does this leave the non-contractual claims against Ds 3 and 4? It is the claims in contract against Ds 3 and 4 which are brought in order to assert contractual rights under the contracts of implied indemnity. Nor is the conspiracy claim brought in order to assert a right arising as a result of non-performance of the implied contracts of indemnity. The essence of the conspiracy allegation is that the conspirators, including Ds 3 and 4, used contracts such as the Alliance guarantees as instruments pursuant to which they extorted money from Alliance. Adopting the analysis which I have favoured, I do not think that these claims can properly be said to be made in respect of the implied contracts of indemnity. The implied contracts of indemnity are merely incidental products of the conspiracy. The claims made in respect of those contracts are the contractual claims made under them.
- I can summarise my conclusions thus far:
Ds 1 and 2: there is no basis upon which they can be served out of the jurisdiction in reliance on gateway 6.
D3: has been served within the jurisdiction, albeit that service has been set aside. However even if it had not, I have now concluded that there is, falling within the ambit of the contractual submission to the jurisdiction, no real issue between Alliance and D3 which it is reasonable for the court to try – Alliance has no subrogated claim against D3.
Ds 3 and 4: there is potentially a basis for reliance on gateway 6 in respect of the claims under the implied contracts of indemnity, but subject to appropriate forum and to my reservation that without further argument service out on this basis could not be relied upon as constituting Ds 3 and 4 anchor defendants for the purpose of the necessary or proper party gateway.
Ds 6-9: gateway 6 is unavailable.
This may render academic further discussion on gateway (3), as there is no "anchor defendant". Since however the matter was fully argued I will express my views upon it.
(ii) Gateway (3)
- Practice Direction 6B paragraph 3.1 provides:-
"3.1 The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where –
(3) a claim is made against a person ("the defendant") on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –
(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and
(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim."
- The first question is whether the Claimant should be permitted to attempt to uphold the permission to serve Ds 1 and 2 out of the jurisdiction on a basis not put forward on the initial application. It is accepted by Mr Toledano that permission to serve Ds 1 and 2 was sought only pursuant to gateway 6, notwithstanding gateway 3 was identified as relevant to the position of all the remaining defendants apart from the offshore SPVs. Mr Toledano again seeks to overcome that problem by reliance on the skeleton argument deployed on the ex parte application before Teare J which, at paragraph 104, asserted that "all of the other defendants are obviously necessary or proper parties" to the claims against D3 in conspiracy, restitution and constructive trust. It is I think entirely in line with the approach advocated by the Supreme Court in NML Capital to permit the claimants now to rely upon gateway 3 in relation to Ds 1 and 2. It involves neither reliance upon a fresh cause of action nor reliance upon different facts. The Respondents rightly reminded us that under this head it must be shown that the party sought to be served is a necessary or proper party to the claim brought against the anchor defendant. Lord Collins in AK Investment v Kyrgyz Mobil Tel [2012] 1 WLR 1804 at 1826 has reaffirmed that:-
"87. . . . the question whether D2 is a proper party is answered by asking: "Supposing both parties had been within the jurisdiction would they both have been proper parties to the action?": Massey v Heynes & Co (1988) 21 QBD 330 at 338, per Lord Esher MR. D2 will be a proper party if the claims against D1 and D2 involve one investigation: Massey v Heynes & Co at 338, per Lindley LJ; applied in Petroleo Brasiliero SA v Mellitus Shipping Inc (The Baltic Flame) [2001] EWCA Civ 418, [2001] 1 Lloyd's Rep 203, at [33] and in Carvill America Inc v Camperdown UK Ltd [2005] EWCA Civ 645, [2005] 2 Lloyd's Rep 457, at [48], where Clarke LJ also used, or approved, in this connection the expressions "closely bound up" and "a common thread": at [46], [49]."
Applying that test there can I think be no real argument but that insofar as a claim is brought against D1 and D2 under the implied contracts of indemnity, they are proper parties to the like claims brought against Ds 3 and 4 under the implied contracts of indemnity. However, Ds 3 and 4 cannot without further argument be relied upon as anchor defendants.
- Gateway 3 would also, I consider, potentially be available for the non-contractual claims against all of the active defendants other than Ds 3 and 4 if Alliance could rely upon Ds 3 and 4 for this purpose as anchor defendants. Likewise Ds 3 and 4 could potentially serve as anchor defendants for each other, having been served or to be served in respect of the claims in implied contract and thereby rendering each for the purposes of the non-contractual claims a proper party to the contractual claims brought against the other.
- All this however is subject to a point argued by Mr Slade as to the meaning of the words "this paragraph" in 6B PD 3.1(3). The argument is that gateway 3 is only available where there is an anchor defendant who has been or will be served without reliance upon any part of paragraph 3 of the Practice Direction. The judge dealt with this argument as follows:-
"54. The history of this provision is set out by Staughton LJ in Kuwait Oil Tanker Co S.A.K. v Al Bader [1997] 1 WLR 1411 CA at 1414. Originally one defendant had to be served within the jurisdiction before there could be an application by reference to the rule for leave to serve another out of the jurisdiction, but this was extended to include the possibility that the anchor defendant had been served outside the jurisdiction, although in Kuwait itself the Court of Appeal was not prepared to construe the provision as extending to a situation where such defendant had not yet been served. This remained the position under the RSC, but the CPR now makes it clear that it is sufficient if the anchor defendant "has been or will be served" and there is no distinction now between such a defendant being within or without the jurisdiction.
55. The Defendants submit that there is however a restriction on the use of this gateway by reference to the words "(otherwise than in reliance on this paragraph)". They submit that provisions for service out of the jurisdiction should be read restrictively where there is doubt or ambiguity. They refer to the words of caution in relation to extraterritoriality as long ago as The Hagen [1908] P189, and it is to be noted that Lord Collins, at paragraph 73 of his judgment in AK Investment, states that "the necessary or proper party head of jurisdiction is anomalous, in that, by contrast with the other heads, it is not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the English courts". They submit, primarily through Mr Slade, that the words in parenthesis do not mean "otherwise than in reliance upon this [sub]paragraph" – i.e. that a claimant cannot seek leave to serve out against another defendant by reference to an anchor defendant which has itself only been brought in on the back of another anchor defendant – but means that a claimant cannot obtain leave to join a defendant anchored upon a defendant who has been brought within the jurisdiction on the basis of any of the other grounds in the paragraph, i.e. the whole of paragraph 3.1. The Defendants submit that I should construe paragraph as referring to the whole paragraph and not just the necessary and proper party subparagraph.
56. Mr MacLean is robust in his opposition to this. He drew attention to the provision in 6B PD 3.1(8), where there is reference to "paragraph (6)", and not "subparagraph (6)", and similarly so in 6B PD 6.5. On the other hand I have, subsequent to the hearing, noticed that, in 6B PD 3.1(20), there is a reference to "any of the other grounds referred to in this paragraph" which could only mean the whole of paragraph 3.1 and not simply subparagraph 3.1(20) itself.
57. Mr MacLean relies upon both of the leading textbooks, Briggs at 4.57 and Dicey & Morris at 11-168, each of which passages entirely supports his proposition, although without addressing the paragraph/subparagraph dichotomy, if such it be. Dicey & Morris states in terms: "Service may be in England as of right, or abroad with permission under CPR 6.20 or abroad as of right under CPR 6.19(2)".
58. I conclude that the inconsistent and possibly erroneous use of the words paragraph/subparagraph is simply sloppy drafting. There is no longer any justification for a difference in approach to extraterritoriality in relation to a case where service is to be made out of the jurisdiction without permission (e.g. within the EU) or with permission."
- I entirely agree with the judge. Under R.S.C. Order 11 r.1(c) prior to amendment, the anchor defendant had to have been duly served within the jurisdiction. By an amendment reflected in the 1988 Rules, the rule thereafter provided " . . . the claim is brought against a person duly served within or out of the jurisdiction and the person out of the jurisdiction is a necessary or proper party thereto". With the advent of rule 6.20 of the Civil Procedure Rules in 2000, the relevant sub-paragraph (3) read:-
"A claim is made against someone on whom the claim form has been or will be served and –
(a) there is between the claimant and that person a real issue which it is reasonable for the court to try; and
(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim."
This involved two changes, albeit as I think only one of substance. There was no longer a reference to the anchor defendant having been duly served, but it is plain that it cannot have been intended thereby to abandon the requirement that the service be achieved in a regular fashion. Moreover, Mr Toledano accepted that he could not rely upon the inactive defendants who have not challenged service upon them, or who have not pursued their challenge, as anchor defendants if the court concludes that permission to serve them out of the jurisdiction should not have been granted. However as a result of the substantial change to the rule in 2000 the anchor defendant no longer needed to have already been served, it was sufficient that he would be served. It was in 2008 that the words in question were introduced into CPR 6.20(3), which by then read:-
"A claim is made against someone on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –
(a) there is between the claimant and that person a real issue which it is reasonable for the court to try; and
(b) the claimant wishes to serve the claim form on another party who is a necessary or proper party to that claim."
In 2009 the relevant rule was relegated to the Practice Direction in the form which has been maintained to date.
- If Mr Slade is right the ambit of the rule has been severely narrowed from that which hitherto obtained. Whereas under the old rule an anchor defendant could be a defendant served out of the jurisdiction with or without permission, now it is suggested that an anchor defendant can only be a defendant served outside the jurisdiction without the need to obtain permission so to do. That would limit such defendants to those capable of being served under the Judgments Regulation or the Lugano Convention or under some specific statutory provision. It seems to me most unlikely that this was intended. I agree with Mr Toledano that the obvious and sensible purpose of the inclusion of the parenthesis "otherwise than in reliance upon this paragraph" is to prevent the accumulation of necessary or proper parties by permitting reliance upon this head of jurisdiction at a further remove from the original claim as justifying the introduction of yet further necessary or proper parties. "This paragraph" obviously means that which appears as "General ground" (3) in which it is found. I am not deterred from that conclusion by the consideration either that that which appears as "General ground" (3) is strictly speaking a sub-paragraph or that the draftsman is not consistent in his usage throughout paragraph 3.1 of the Practice Direction of the words paragraph and sub-paragraph.
The Proper Law of the Tort
- I must next deal with the question whether there is, as the judge found but as the active defendants challenge, a good arguable case that the non-contractual claims fall to be resolved by English law. This question arguably arises under two heads, (i) whether there is a serious issue to be tried and (ii) the significance of the governing law to the identification of the appropriate forum. However in my judgment it is only the second head which is of relevance here, for the judge also concluded that it is seriously arguable that the conduct complained of is actionable under Kazakh law, see judgment paragraph 41. The only challenge of substance to that conclusion is that the case in Kazakh law is "hopelessly unparticularised". Even before the amendment to rely on Kazakh law, which the judge encouraged to be made in short form, the judge had before him evidence from the Claimants' expert, Mrs Violetta Kim, a former judge of the Supreme Court of Kazakhstan, to the effect that the matters set out in paragraphs 98 – 103 of the Points of Claim, in which the Claimants set out their case in conspiracy, "give rise to a tort/delict claim under the law of Kazakhstan". That is what is now pleaded as being the effect of Article 917 of the Civil Code of Kazakhstan. As regards unjust enrichment, hitherto pleaded at paragraphs 130 and 131 of the Particulars of Claim, Mrs Kim said:-
". . . If the defendants received the proceeds of Alliance's property in the manner set out in the Particulars of Claim, in my opinion, Alliance has sufficient grounds to bring claims for unjust enrichment against them under the law of Kazakhstan."
That is what is now pleaded as being the effect of Article 953 of the Civil Code of Kazakhstan. I am not sure that the Defendants filed evidence in opposition to that of Mrs Kim. The application to amend to rely upon Kazakh law was made late and there may have been no occasion for the Defendants to file evidence disagreeing with Mrs Kim's view. This may be why the judge records Mrs Kim's view as being "not affected at all by the expert evidence of Professor Butler filed on behalf of D6." However, if there had been such rebutting evidence, the judge could not have resolved the conflict on this application. In such circumstances the judge was in my view bound to conclude that there was a serious issue to be tried whether the Claimants could succeed by reference to the law of Kazakhstan. That is not a conclusion which it is appropriate to revisit. However it remains relevant to the question of appropriate forum to enquire whether the non-contractual claims are seriously arguable in the English law of tort. If they are, that is a factor which tells in favour of the forum to which the law is native. However it does not tell heavily in the scales because the judge recognised, rightly, that he could not finally determine the question of governing law at this stage. As explained by the Court of Appeal in VTB at paragraph 150, "If [the] exercise is being carried out at the interlocutory stage as part of an overall exercise to determine whether the English court should have jurisdiction to determine the claim in tort in question, the court cannot finally determine the applicable law of the tort". Even if the judge had been able to reach a provisional view that the governing law would prove to be English, still that would be of little weight when considering appropriate forum, as again explained by this court in VTB at paragraph 166:-
"Even if we had concluded that the applicable law of the torts was English law, this would not have been a factor that would weigh heavily in making England the appropriate forum, precisely because if the defendants wish to allege and plead that the applicable law was Russian law, both sides would have had to prepare for a trial on that basis. If the case were to be heard in England, both sides would have to prepare expert evidence on Russian law; and, doubtless, the obverse would be so if the case were to be heard in Russia."
However Mr Morgan submitted that there is no serious issue to be tried that any law other than Kazakh law applies in relation to these claims. If that were right, then obviously the governing law of the non-contractual claims would provide no connecting factor with the English jurisdiction, however slight.
- The judge dealt with this question concisely. So far as concerns conspiracy, he said this:-
"37. In order to decide what the proper law of the tort is, the first question is, as always in recent times, whether the issue is governed by the Private International Law (Miscellaneous Provisions) Act 1995 ("the 1995 Act") or by Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations ("Rome II"). The recent decision of the European Court in Deo Antoine Homawoo v GMF Assurances SA [Case C-412/10] is very concise. It concludes that a national court is required to "apply the Regulation only to events giving rise to damage occurring after 11 January 2009". But this of course does not help as to whether the date is the date when the damage is caused or whether it is the date of the event which subsequently, possibly years later, caused the damage, and if so how the court is to assess which event is the relevant one. In this case it could be said that the damage was caused when the Claimant was caused to enter into the "ungrounded" Guarantees, or when the STRIPS were lost, in February and April 2009: This will be the crucial question, on the assumption that the European Court decision should be read as relating to "damage occurring after 11 January 2009". Alternatively, if the issue is to be construed as relating to "events (giving rise to damage) occurring after 11 January 2009", then the question would concentrate on when those events occurred, and which event or events were primarily causative.
38. My judgment would be that the former question may be the more appropriate, given that Articles 4(1) and (2) of Rome II direct the question normally to the "law of the country in which the damage occurs", or, where the claimant and defendant both have habitual residence in the same country, "at the time when the damage occurs", then that law. However:
i) The fall back provision under Article 4(3) "where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2", is that the law of that other country is to apply, and there is no mention there of the relevance of the place of the occurrence of the damage – indeed, it would appear to be excluded from consideration by the very nature of the issue.
ii) The question becomes all the more significant where the damage, e.g. the development of symptoms of disease or the collapse of foundations of a building, takes place many years after the act the subject matter of the tort.
39. This not only leaves open the questions which are, in any event, permitted by Article 4 – i.e. consideration of Article 4(3) – but also the question that the 1995 Act might still apply if it were concluded that what is significant is the date of the event which caused the damage, and, in this case, that would appear to have antedated 11 January 2009. This is an issue which will, subject only to the issues raised in paragraph 38(ii) above, slowly evaporate with time, but, for the moment, there is no guidance, and parties in cases such as these will have to look, as we have done, both at the 1995 Act and at Rome II. In any event, the Defendants assert that the significant events occurred in Kazakhstan, by way of the establishment of the scheme and/or by way of the alleged loss to the Bank. The Claimant submits that the significant law is the proper law of the mechanics of the scheme, which, in each case, was English law, by virtue of the fact that the mechanism by which the totality of the US$ 1.1bn was extracted from the Claimant was, in every case, by reference to the English law Guarantees and Loan Agreements.
40. Thus the rival contentions would be:
i) By reference to s11(1) of the 1995 Act – the country in which the events constituting the tort or delict in question occur – the Defendants would say Kazakhstan, while the Claimant would submit that s11(2) applied by reference to "elements of those events occurring in different countries".
ii) By reference to s11(2) the Claimant asserts, but subject to its reliance on s12, Cyprus, as being the place where the property (the STRIPS) was when it was damaged (removed from the custody account).
iii) By reference to s11(2)(c) – the law of the country "in which the most significant element or elements of those events occurred" – the Claimant would assert Cyprus or Liechtenstein (the home of the Fifth Defendant) where the Offshore Companies were managed, and the Defendants would say Kazakhstan.
iv) The Claimant would however submit that s12 of the Act – "displacement of general rule" – that English law was substantially more appropriate, by virtue of English law being the mechanism of the fraud effected by the Loan Agreements and the Guarantees; although Mr Morgan would put forward as a candidate the law governing the relationship between the Sixth and other individual Defendants and the Claimant bank, which would be governed, so far as contractual and fiduciary obligations are concerned, by Kazakh law.
v) If Rome II applies, then, under Article 4(1), it would appear that Cyprus law would apply as being the law of the country in which the damage occurs, although the Defendants would assert Kazakhstan.
vi) If Article 4(2), referred to in paragraph 38, applies, then that would be Kazakhstan, as between the Claimant and some of the Defendants, but it is, it seems, an unanswered question as to whether Article 4(2) applies at all where more than one person is claimed to be liable and does not share the habitual residence of the person sustaining damage.
vii) Then, in relation to Article 4(3) referred to in paragraph 38(i) above, the Claimant would assert that it is clear from all the circumstances of the case that the tort is manifestly more closely connected with English law, whereas the Defendants would assert Kazakh law.
41. It seems clear to me that I cannot decide this question without a full understanding of the facts. At the moment, I would regard it as likely that Cyprus law is the same as English law, and, in any event, am safe in adopting the presumption (which I could not adopt in relation to Kazakh law because I am told, as was Teare J, that there is no law of conspiracy in Kazakh law) that Cyprus law is the same as English law so far as the common law of conspiracy is concerned (see Dicey, Morris & Collins The Conflict of Laws (14th Ed) 9-025 and supplement), but even without the alternative candidacy of Cyprus law, I would regard it as a serious issue to be tried as to whether English law is the proper law of the tortious acts alleged. . . ."
- On the governing law in respect of the claims in dishonest assistance / unjust enrichment / knowing receipt the judge said this:-
"42. There have been two recent helpful authorities in respect of the proper law to apply in this regard, the decision of Christopher Clarke J in OJSC Oil Company Yugraneft v Abramovich [2008] EWHC 2613 (Comm) and that of Andrew Smith J in Fiona Trust and Holding Corporation v Privalov [2010] EWHC 3199 (Comm). So far as dishonest assistance is concerned, Christopher Clarke J concluded that, by reference to the 1995 Act (and consequently, in my judgment, to Rome II), a claim in dishonest assistance was a tort. As for knowing receipt and unjust enrichment, he followed the guidance of Rule 230 of Dicey & Morris (though not inflexibly) (see paragraphs 239 and 246-7 of his judgment), as did Andrew Smith J at paragraph 162 of Fiona Trust. Applying this guidance, I would reach the same conclusion in relation to the tortious test of dishonest assistance as I have in relation to conspiracy, namely that there is a serious issue to be tried as to whether the proper law of such tort is English law for the reasons I have set out above: alternatively there is again, by an amended pleading, reliance placed, by reference to the same facts, on Kazakh law, and Articles 953, 955 and 956 of the Civil Code, again persuasively explained by Mrs Kim as establishing an equivalent claim (and remedies) for unjust enrichment.
43. So far as concerns knowing receipt and unjust enrichment itself, I conclude that, at English law, there is a sufficiently arguable case that the proper law is to be decided by reference (see Dicey & Morris Rule 230(2)(a)) to the obligation to restore the benefit of the enrichment arising "in connection with a contract": although Mr Morgan would rely, as referred to above, upon the contract or relationship between (at any rate) the Sixth Defendant and the Claimant, I would conclude that there is a serious issue as to whether the connection is not rather with the contracts, all governed by English law, by reference to which the enrichment arose. A similar choice and provisional conclusion would arise by reference to Article 10 of Rome II Unjust Enrichment. Alternatively, if Kazakh law arises, then I am satisfied that the Claimant's case can be put just as well in Kazakh law by reference to the Articles of the Civil Code referred to above."
- It is perhaps useful to reproduce here the provisions in question. The Private International Law (Miscellaneous Provisions) Act 1995 relevantly provides:-
"11.(1) The general rule is that the applicable law is the law of the country in which the events constituting the tort or delict in question occur.
(2) Where the elements of those events occur in different countries, the applicable law under the general rule is to be taken as being –
(a) for a cause of action in respect of personal injury caused to an individual or death resulting from personal injury, the law of the country where the individual was when he sustained the injury;
(b) for a cause of action in respect of damage to property, the law of the country where the property was when it was damaged; and
(c) in any other case, the law of the country in which the most significant element or elements of those events occurred.
(3) In this section "personal injury" includes disease or any impairment of physical or mental condition.
12.(1) If it appears in all the circumstances, from a comparison of –
(a) the significance of the factors which connect a tort or delict with the country whose law would be the applicable law under the general rule; and
(b) the significance of any factors connecting the tort or delict with another country,
that it is substantially more appropriate for the applicable law for determining the issues arising in the case, or any of those issues, to be the law of the other country, the general rule is displaced and the applicable law for determining those issues or that issue (as the case may be) is the law of that other country.
(2) The factors that may be taken into account as connecting a tort or delict with a country for the purposes of this section include, in particular, factors relating to the parties, to any of the events which constitute the tort or delict in question or to any of the circumstances or consequences of those events."
- Regulation (EC) No 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) relevantly provides:
"Article 4
General rule
1. Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.
2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply.
3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question."
- So far as concerns the English statute it is obviously section 11(2)(c) which is initially engaged. Mr Morgan suggests that at the core of the case is the relationship between the Claimant and D6 which is obviously governed by Kazakh law. The unlawful means used to further the conspiracy must all be centred on breach of the Kazakh duties owed to the bank. Then, turning to the geographical focus in section 11, one has conspiracy, knowing receipt, dishonest assistance by Kazakh nationals in Kazakhstan whilst in the employ of the bank in Kazakhstan against the interest of the Kazakh bank, so that the events constituting the tort in question all took place in Kazakhstan. The first overt act of the conspiracy, the purchase of the STRIPS, was directed from Kazakhstan. Turning to section 12, Mr Morgan suggests that the circumstance that there was in the scheme of things a suite of contracts governed by English law is not sufficient to displace the general rule arising from the concentration of all the relevant activities and relationships in Kazakhstan. If anything, the contest should rather be between Kazakhstan and Cyprus, where the STRIPS were appropriated, rather than a contest between Kazakhstan and England. He also submits that the ultimate loss will be felt by Alliance in Kazakhstan, not in Cyprus. He submits that the same result flows from an application of the Rome II Regulation, bearing in mind that both the conspirators and the bank were at the relevant time habitually resident in Kazakhstan and the damage occurred either in Cyprus or in Kazakhstan. The circumstance that English law contracts were employed cannot render the tort "manifestly more closely connected" with England than with Kazakhstan. Examination of the case in dishonest assistance, which Mr Morgan accepted should be treated for these purposes as a tort, led to the same conclusion. Turning to knowing receipt and unjust enrichment Mr Morgan accepted that the judge was right to focus on the law having the closest connection to the obligation to restore. The suggestion however that the pre-existing Kazakh relationship between the Claimant and D6 might be displaced by the law of the Reachcom loan agreements or of the guarantees was, he submitted, unrealistic. The same argument was adopted on behalf of the other Defendants. On this aspect Article 10 of the Rome II regulation is also relevant. It provides:-
"Article 10
Unjust enrichment
1. If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship.
2. Where the law applicable cannot be determined on the basis of paragraph 1 and the parties have their habitual residence in the same country when the event giving rise to unjust enrichment occurs, the law of that country shall apply.
3. Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the unjust enrichment took place.
4. Where it is clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply."
Kazakh law would, submitted Mr Morgan, apply either (i) under Article 10.1 because the alleged obligation to repay concerned a pre-existing relationship between C and D6 governed by Kazakh law or (ii) under Article 10.2 because C and D6 both had their habitual residence in Kazakhstan at the time of the relevant events, or (iii) under Article 10.4 because "it is clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected" with Kazakhstan than with any other country.
- These are powerful submissions, but I remind myself that, as this court explained in VTB at paragraph 150 of the judgment, "it is "quintessentially" for the judge to make an assessment of the significance of the elements of the events constituting the tort for the purposes of Section 11(2)(c)" and that "this court will not interfere with that assessment unless it is satisfied that the judge "made such an error in his assessment as to require this court to make its own assessment" – see the judgment of this court in Dornoch Limited v Mauritius Union Assurance Co Ltd [2006] 2 Lloyd's Rep 475". The hurdle which Mr Morgan must surmount is thus a high one.
- Mr Toledano's response was to emphasise that the gist of the cause of action in conspiracy is the overt acts such as the execution of the guarantees, which he alleges took place in Cyprus, the charging of the STRIPS, which took effect in Cyprus, the lending of the money to the offshore companies which resulted in transmissions of money to the BVI and Samoa, and the appropriation of the STRIPS, again in Cyprus. He relies too upon Section 11(2)(b) of the Private International Law (Miscellaneous Provisions) Act 1995 but I am for my part unpersuaded that the charging and appropriation of the STRIPS amount to damage to property. Turning to the displacement provisions in section 12 of PILA he submits that the choice of English law as the governing law of all of the formal contracts used to implement this scheme is a powerful factor connecting the tort with this jurisdiction. Under Rome II, submits Mr Toledano, the case for Cypriot or English law is even stronger. There the default position is the law of the country where the event giving rise to the damage occurs, which, submits Mr Toledano, must here be Cyprus. I note also that Article 4.1 of Rome II prescribes that the default position attaches to the place where the event giving rise to the damage occurs irrespective of the country or countries in which the indirect consequences of that event occur. Mr Toledano submits that Article 4.2, which deals with habitual residence, cannot be intended to deal with multi-jurisdictional cases where some of those alleged to be liable for the damage have their habitual residence in countries other than that of the person sustaining damage. Rather, it is intended to deal with cases such as a traffic accident in Spain involving two English tourist motorists, where the coincidence of their habitual residence would indicate English law as the law appropriate to govern their relationship.
- So far as concerns unjust enrichment and knowing receipt, whilst accepting that the relevant law is the proper law of the obligation to restore, Mr Toledano submits that it is unreal to suggest that the obligation arises in connection with Kazakh fiduciary or employment duties and that rather it arises by reason of the fact that the offshore SPVs received money under the English law governed loan contracts, the value of which was ultimately derived from Alliance. Rule 230 of Dicey Morris and Collins 14th Edition sets out the common law rule which obtained before the Rome II regulation came into effect. That rule provides:-
"(1) The obligation to restore the benefit of an enrichment obtained at another person's expense is governed by the proper law of the obligation.
(2) The proper law of the obligation is (semble) determined as follows:
(a) if the obligation arises in connection with a contract, its proper law is the law applicable to the contract;
(b) if it arises in connection with the transaction concerning an immovable (land), its proper law is the law of the country where the immovable is situated (lex citus);
(c) if it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs."
Paragraph 2(a) of Rule 230 would, submits Mr Toledano, point to English law. Paragraph 2(c) would point to the BVI or Samoa. Mr Toledano repeats essentially the same arguments under Article 10 of Rome II. Under Article 10.1 he identifies the law of the loan agreements pursuant to which the offshore SPVs received the money. Article 10.2 is inapplicable. Article 10.3 would point to the BVI or Samoa if English law has not already been applied under Article 10.1. Under Article 10.4 there is, he submits, no manifestly more closely connected country other than those identified by the earlier articles.
- I am conscious that many of Mr Toledano's arguments under this head concentrate almost exclusively upon the position of the offshore SPVs, and that different considerations will apply in relation to other Defendants. I am also conscious that in relation to the argument under gateway 6, I have expressed the view that the relationship between the tort and the English law contracts is not a relevant jurisdictional link. That however is because, in large part, although not conclusively, so far as concerns the Defendants other than Ds 3 and 4, these are not contracts to which they were party, the very making of which in those terms can be regarded as a link with this jurisdiction whereby they acknowledge its appropriateness. The exercise of determining by which law their allegedly tortious activities should be governed is an exercise completely different in kind, as is demonstrated by the fact that under Practice Direction 6B the proper law of the tort is no part of gateway (9). For that purpose I have no difficulty in accepting that one factor to be taken into account is the use, as a vehicle of the alleged fraud, of contracts governed by English law.
- For my part I consider that the judge was wise to conclude that he could not reach even a provisional view as to the likely proper law of the tort without a full understanding of the facts. In concluding that there is a serious issue to be tried whether English law, or perhaps some other system of common law derived therefrom such as that of Cyprus, is the governing law, he did not I think err in his assessment. An assessment at this stage which ruled out the serious prospect of English law or some other common law derivation therefrom ultimately being shown to be the proper law of the obligations would, I think, have been over-confident.
Was the judge wrong to conclude that Alliance had failed to demonstrate that England is "clearly or distinctly the appropriate forum" to determine these disputes for the ends of justice and in the interests of the parties?
- I adopt the classic formulation of the test as restated by the Court of Appeal in VTB and which is essentially the test which the judge applied.
- As the judge recorded at paragraph 72 of his judgment and as adumbrated above, the central plank of the Claimant's case before him on the appropriateness of the English forum was the exclusive jurisdiction clause in the Reachcom loan agreements upon which Alliance sought to rely in the subrogated claims against Ds 3, 4, 6, 7 and 8. That jurisdiction clause was also said to be relevant to the identification of the appropriate forum for the conspiracy and other claims against all the other Defendants, an argument which I have not had to address. The decision in VTB has, subject to one point, rendered the exclusive jurisdiction clauses of no relevance to the claims against Ds 6, 7 and 8. Mr Toledano suggested that the exclusive jurisdiction clauses could still "cast their shadow" over those Defendants but that argument is unavailable given my conclusion that the claims by Alliance under the Reachcom contracts are in any event unsustainable.
- The judge concluded that there is "an overriding Kazakh feel to all the claims now made". The principal plank of Mr Toledano's attack upon that conclusion was an assertion that the judge had erred in failing to afford primacy to the exclusive jurisdiction clauses and in too readily finding strong reasons or exceptional circumstances why the offshore SPVs should not be held to their agreement. Without that plank, Mr Toledano is in my judgment in difficulty in seeking to persuade us that that the judge erred in his evaluation of the competing factors.
- In order to put the judge's conclusions into context it is necessary to fill out a little more of the history of the investigations and procedures which have taken place in Kazakhstan since the discovery of the alleged fraud.
- In April 2009 Mr Kabashev, the new Chairman of the Board of Alliance, wrote to the Prosecutor General of the Republic of Kazakhstan requesting the initiation of an investigation by the law enforcement bodies into the recently discovered embezzlement of the Bank's funds. The letter included the following:-
"Alliance Bank ("the Bank") applies to you with a request to initiate criminal case in relation to the facts of embezzlements of the Bank's funds, which have been recently discovered by the new management of the Bank and by controlling bodies and which were committed by means of illegal (without the observation of the established procedures and without proper recording in the official reports) issue by the Bank of the guarantees of offshore companies, Bazora Corporation, Aquanta Corporation, Xilliana Limited, Serbina Limited (registered on British Virgin Islands and in the State of Samoa) for the total amount of over US$ 1 billion. The Bank has no information about who owns the specified offshore companies, for what purposes they borrowed funds, why and on what terms they obtained bank guarantees, etc, none of currently working employees can explain anything with regard thereto."
- Following a pre-investigation enquiry, on 5 June 2009 the investigators ordered that a criminal case be initiated against the former management and other employees of Alliance. There then began a formal investigation phase, in which the investigators exercised wide powers under Kazakh law. Many documents were seized and a large number of current and former employees were interviewed under oath.
- Criminal cases against former executives and other employees of Alliance were commenced in May and October 2009. On 8 December 2009 Alliance was declared a "victim" in the criminal cases. On 24 December 2009, while the investigation was still ongoing, Alliance filed a petition to be declared a "civil claimant" in the context of the criminal cases and to recover from five named Defendants, who did not then include D6, "property damage" in an amount denominated in the Kazakh currency.
- On 25 December 2010 the Kazakh Prosecutor filed a formal criminal indictment against D6, D11, D13 and two others. Although initially charged with embezzlement the charge ultimately pursued against the Defendants was the "illegal use of monies through the issue of ungrounded guarantees", contrary to Article 220 of the Kazakh Criminal Code.
- On 19 January 2011 Alliance filed in the court of Medeusky District of Almaty a formal request for compensation for property damage caused by illegal financial transactions consisting in the loan agreements with the offshore SPVs and the associated guarantees given by Alliance to the lenders Reachcom and Metropol. Compensation was sought from the Defendants, including D6, D11 and D13. The claim was made in accordance with Articles 77 and 162 of the Kazakh Criminal Code which provide, at any rate in part:-
"77. A civil claimant shall be an individual or legal person in respect of which there are reasonable grounds to believe that a crime has directly caused damage to property, raising the requirement for compensation. The civil claimant can also bring a suit for material compensation of moral injury. The prosecutor in the cases prescribed by the law has a right to recognise on the own initiative as a civil claimant an individual or legal person.
162. In criminal proceedings there are considered the civil actions of individual and legal persons for compensation of material and moral damage caused directly by a crime . . ."
The amount sought by way of compensation was denominated in Kazakh Tenge but reference was made to the illegal disposal of STRIPS to the value of US$ 1.18 billion, the same sum as that asserted in the Particulars of Claim herein.
- Alliance has been somewhat ambivalent concerning the filing of this claim. It now seeks to characterise it as an obviously sensible step to take as the victim of an alleged fraud and simply an incident of the criminal process in Kazakhstan. It is of course right to say that it was not the bringing of a civil claim, which would have been a lengthier and different process. Reliance was placed not on the Kazakh law causes of action under the Civil Code to which I have already referred, but on the opportunity to seek compensation as a victim of a crime which has directly caused damage to property. However there were distinct advantages to Alliance in adopting this procedure as explained by Miss Taylor in her affidavit of 4 April 2010. That affidavit reads:-
"68. I understand, from the Kazakh civil lawyers consulted . . ., that the private claim is largely parasitic on the criminal prosecution, such that if the criminal prosecution succeeds (i.e. the criminal defendants are found guilty) then the private claim is overwhelmingly likely to succeed. Likewise, if the criminal prosecution fails, the private claim simply cannot proceed in its present form (i.e. in the criminal courts). The private claim will be heard by the same judge in the criminal court as the criminal prosecution.
69. The private claim is different, therefore, from an ordinary civil suit in the civil courts of Kazakhstan. There are also critical advantages in bringing such an action in the context of the criminal proceedings as opposed to in the civil courts. These include:-
(a) the Prosecutor will assist the victim's case (as it goes hand in hand with the criminal prosecution);
(b) there are extremely important costs advantages – the 3% fee (which I mentioned above) need not be paid where a private claim is brought in the criminal court;
(c) it will be determined much more quickly;
(d) without Alliance bringing such an action the Kazakh criminal courts would have no power to order restitution of the proceeds of the crime to the victim.
70. In practice, if not in theory (because the claim could have been brought later in the civil courts) Alliance had to bring the private claim in the criminal prosecution. Had it not, it would have faced trying to bring a civil suit many months later in the civil courts of Kazakhstan, at a cost in excess of US$ 30 million. In circumstances where Alliance has been the victim of a sophisticated fraud, perpetrated over a number of years, US$ 30 million represents an enormous sum of money – indeed it could be more than the value of the defendants' actual assets in Kazakhstan."
The reference to a 3% fee is to the requirement placed upon a claimant bringing a civil claim in a Kazakh civil court to pay to the state on filing of the claim a non-refundable fee of 3% of the value of the claim, which would here be a little over US$ 30 million. The fee is recoverable from the Defendant(s) to the claim in the event of the claim succeeding. Later in her affidavit Miss Taylor points out than an English judgment would be unenforceable in Kazakhstan so that the bringing of this "private claim", as she terms it, in Kazakhstan, may represent, in practice, the only means of recovering assets in Kazakhstan.
- The criminal trial, including consideration of Alliance's claim for compensation, began on 20 January 2011 before the Medeusky Court of Almaty. Ds 6, 11 and 13 all attended the trial and were represented.
- The English proceedings herein were begun on 5 April 2011 by the ex parte application before Teare J, pursuant to which he gave permission to serve outside the jurisdiction and imposed worldwide freezing orders over the assets of all of the Defendants. We were told that no such similar asset freezing relief is available from the Kazakh court. Indeed it was the constant refrain of D6, with what justification we cannot assess, that the principal purpose of bringing the English proceedings was in order to obtain the worldwide freezing order.
- The criminal trial concluded on 8 July 2011. Ds 6, 11 and 13 were convicted of the criminal offence under Article 220. Ds 6 and 11 were given a two year suspended prison sentence, deprived of the right to conduct banking activities for two years and fined. D13 was fined and deprived of the right to conduct banking activities for two years. Additionally, D6 was ordered to pay to Alliance the full amount of the civil claim. The other Defendants in the Kazakh proceedings were ordered to pay lesser amounts in respect of that claim, apparently all on what we would recognise as a joint and several basis.
- On 20 July 2011 D6 filed with the Court of Appeal of the Almaty City Court an appeal against the compensation order made in respect of the civil claim. He did not at that stage file a conventional time limited appeal against his conviction although it seems that it is still open to him so to do by way of an alternative procedure knows as a "supervisory review" which may be brought at the Supreme Court without limit of time. Alliance for its part filed an appeal against the leniency of the sentence imposed upon D6.
- On 15 September 2011 the Court of Appeal of the Almaty City Court gave its decision on the appeals. Alliance's appeal was dismissed. The appeal of D6 in respect of the compensation order succeeded but there is some controversy as to the extent of that success and as to the effect of the order made. The order made by the court reads:-
"ORDERED
. . . to reverse the part of the sentence as it relates to the adjudication of civil claim for charging from the convicted to the benefit of "Alliance Bank" JSC the following amounts (and then there follows a list of the amounts which had been ordered to be paid, in the case of D6 the full amount claimed) and to recognise that "Alliance Bank" JSC has the right to satisfy its claims and the issue on the amounts charged from the guilty, and to consider them in court in the course of a civil process."
There appear to have been two main reasons for the court's decision to set aside the compensation order. Firstly, the court concluded that there may be others who may also be responsible for the loss. Thus the court said:-
"At the same time, the part of the sentence concerning adjudication of a civil claim of Alliance Bank JSC is to be set aside as detailed calculation is impossible to perform. As it appears from the criminal case file, more people are jointly liable for the damage caused to the bank.
While the convicted [Ds 6, 11 and 13 and one other] are indisputably liable as to the compensation of damage under this sentence, the injured party Alliance Bank JSC may on civil process hold liable as co-defendants other individuals involved in the committed crime, in respect of whom a criminal case was severed."
Secondly, the court seems to have considered that Alliance had not proved its loss. I have already reproduced that part of the judgement in which it was said that detailed calculation was impossible to perform. The court continued:-
"Also, when determining the amount of damage, it should be considered that the borrowed funds from Xilliana Limited, Serbina Limited, Bazora Corporation, Aquanta Corporation were used to increase the Authorised Capital of Alliance Bank JSC: funds for which Corporation Seymar-Alliance JSC and affiliates of the Holding repurchased depository receipts of Alliance Bank on the London Stock Exchange in the amount of US$ 383,512,961 and bonds of Alliance Bank JSC in the amount of US$ 100 million; funds in the amount of US$ 135 million for which finance corporation Seymar-Alliance JSC repurchased uncollectable loans of Alliance Bank, profits in the amounts of US$ 1,385 million were reserved by shareholders for the bank development.
. . .
The issue of releasing the attached property of Alliance Bank JSC is related to the decision-making on a civil claim. The applicant should apply to court of first instance and present all entitling documents on the items attached.
Since it is necessary to specify both the amount of the incurred damage to the injured party and the claim amount to be charged, under joint liability, from everybody except for the convicted who is guilty in causing damage, it should be recognised that Alliance Bank may satisfy the claim in the course of a civil process."
- On 4 November 2011 Alliance filed with the Supreme Court of Kazakhstan an application to be permitted to appeal against the decision of the Court of Appeal, both in respect of the leniency of the sentence and of the decision to set aside the award of compensation to Alliance. This application was outstanding when the matter came before Burton J. In a witness statement filed during the long hearing before Burton J Miss Taylor, for Alliance said this:-
"6. Mr Bolgauov has informed me that the Supreme Court has one month in which to consider Alliance's application in order to decide whether to allow Alliance to appeal. If Alliance is allowed to appeal, the hearing will then be conducted within one month following the Supreme Court's decision (Article 406 of the Kazakh Criminal procedural Code, E1/4/213).
7. My Bolgauov has confirmed to me that Alliance can withdraw its appeal application or amend its application to exclude its appeal of the civil claim judgment at any point prior to the final Supreme Court hearing. However, Mr Bolgauov also informs me that Alliance cannot request that the appeal proceedings be stayed – they can only be pursued or abandoned / amended.
8. Without waiving privilege over those instructions, since the commencement of the current hearing and as a result of Mr Justice Burton's questions directed at our Counsel during the first day of the hearing, we have been taking instructions as to what Alliance might be prepared to do in respect of those Kazakh proceedings. This has presented a difficult dilemma for Alliance, because, as outlined above, if it elects to withdraw its appeal then its only remaining option would be to commence fresh civil proceedings in Kazakhstan.
9. However, Alliance has come to the decision that, if the English Court will take jurisdiction against the Sixth Defendant, Alliance is prepared (if so ordered) to withdraw its appeal in respect of the civil claim in Kazakhstan and will (if so ordered) undertake not to initiate or take any further steps in any civil proceedings in Kazakhstan against the Sixth Defendant for as long as English proceedings against the Sixth Defendant are in existence. It will be our Counsel's submission that these undertakings are not necessary, but if the Court disagrees then Alliance is willing to give them."
These proffered undertakings were reflected in paragraph 16 of the judge's judgment of 14 December 2011. In the event, as recorded by the judge at paragraph 76 of his judgment, no such undertakings were required. However, notwithstanding the judge declined to assume jurisdiction over the claim against D6, on 14 February 2012 Alliance withdrew its application to the Supreme Court.
- In Miss Taylor's third witness statement of 17 October 2011 she asserted that the effect of the judgment of the Court of Appeal of Almaty was to "reaffirm the 6th Defendant's (and the 11th and 13th Defendants') liability in damages to Alliance", albeit the award of damages had been overturned. Miss Tepsaeva, D6's Kazakh lawyer, has dealt with the effect of the judgment in two witness statements, her second of 7 October 2011 and her third of 29 October 2011. In the first of those witness statements she said this:-
"7. . . . the judgment of the Court of Appeal of 15 September 2011 quashed the trial court's judgment in the civil claim against the Sixth Defendant. The Court of Appeal did not find that the Claimant had actually suffered the losses which he claimed had been caused by the Sixth Defendant, or that all the appropriate parties were before the court.
8. The judgment of the Court of Appeal recognised that JSC "Alliance Bank" has a right to have its claim and issues relating to the amount of recovery from the guilty persons determined by a court in civil proceedings."
In her third witness statement Miss Tepsaeva said this:-
"12. The very fact that the Court of Appeal has refused to satisfy the civil claim in Kazakhstan and has set aside the judgment of the Court of First Instance in that respect, indicating that the Claimant is entitled to seek recovery of damages in civil proceedings in Kazakhstan, confirms that the Sixth Defendant's liability in respect of causing damage to Alliance is not indisputable and must be demonstrated in separate civil proceedings."
- Before us, for obvious tactical reasons, the submissions of Mr Toledano and of Mr Morgan on this point departed from the approach taken by their own witnesses. Thus Mr Toledano submitted that the judgment had been quashed and was of no further effect, whilst Mr Morgan submitted that its effect was to confirm the liability of D6 to pay compensation whilst leaving the questions of causation and quantum of loss to be established by the civil court. I have already noted the provisions of the Criminal Code pursuant to which the claim was made. In the formulation of the claim put before the criminal court no reference was made to the articles of the Civil Code pursuant to which, it is asserted by Alliance, the conduct of the conspirators is actionable at Kazakh law. No civil action asserting those causes of action has yet been begun in Kazakhstan by Alliance. It is also the evidence of Mrs Kim, in her expert report, that:-
"55. The special regime for considering claims for compensation due to crimes within the criminal proceedings does not allow a victim to bring all his possible civil claims [for example, for breach of the Civil Code] in the criminal proceedings. That is apparent from the fact that the civil claim must be for harm as a direct result of a crime, and the accused must be found guilty of that crime – something which, to my knowledge, no Article in the Civil Code requires."
The suggestion therefore that the judgment given in the criminal proceedings, assuming its continued existence, established a liability to pay compensation which is subject to proof of causation and amount in the civil court seems to me to represent something of a hybrid. If the hybrid exists or is effective, it does not establish the conspirators' liability to Alliance pursuant to the civil law of Kazakhstan, simply a liability to make redress under the Criminal Procedural Code for harm caused by the violation of Article 220 of the Criminal Code. However I do not see how we can with any confidence reach a conclusion as to the effect of the decision made by the Court of Appeal in Almaty. The fact that Alliance has pursued a claim in the Kazakh courts for compensation and that D6 has had to defend the same in that jurisdiction is obviously a factor which must be weighed in the balance when considering which is the appropriate forum for the resolution of the dispute. At the very least, D6 is entitled to point to the very substantial investigation of the documents and facts which his Kazakh lawyers have already had to undertake in that jurisdiction. Whilst D6 would of course have been obliged to defend himself in the criminal proceedings in any event, it is plain that dealing with the claim for compensation must have generated significant extra work and expense. A large number of witnesses were heard by the court and many thousands of documents adduced in evidence.
- Mr Toledano naturally relied upon the decision of the Court of Appeal in Kuwait Oil Company (KSC) v Idemitsu Tankers KK. (The "Hida Maru"), [1981] 2 Lloyd's Law Reports 510. The defendant's vessel collided with the plaintiff's jetty whilst mooring alongside in Kuwait, causing enormous damage. The relationship between the plaintiff owners of the facility, Kuwait Oil, and the defendant shipowners was governed by contractual conditions of use, in standard form and in use throughout the world, written in English, governed by English law and containing an exclusive English jurisdiction clause conferring upon the owners of the facility the option to elect English jurisdiction. Kuwait Oil began proceedings against the owners in Kuwait, claiming only in delict. In reliance upon the report of a court appointed expert, the court gave an indication that it would dismiss the claim in delict, whereupon Kuwait Oil amended its claim so as to assert a claim in contract pursuant to the conditions of use. The Kuwait court dismissed the claim in delict and declined jurisdiction in respect of the claim in contract, on the footing that it was contrary to the local court rules on joinder of action to join a contract claim to a delict claim. Kuwait Oil initially lodged an appeal to the Kuwait Court of Appeal but subsequently abandoned it and sought leave to serve the owners in Japan with proceedings commenced in England. It is unclear from the report whether in those proceedings claims were made in tort as well as in contract. The judge concluded that England was the appropriate forum for the resolution of the dispute and permitted service out, although he required Kuwait Oil to pay to the owners all the costs to which they had been put in Kuwait. The Court of Appeal agreed with his decision. The court weighed all the factors, but what particularly weighed with the court was that the claim in contract was founded on standard ("universal") forms in use all over the world, written in the English language and governed by English law. Lord Denning MR held England to be the natural and appropriate forum "to decide on these forms". An additional consideration was that it appeared on the evidence that a Kuwaiti court might be precluded from giving effect to the terms of the contract which might be held invalid or unenforceable in Kuwait. I do not think that this case greatly assists Mr Toledano. There were special factors present, albeit the Court of Appeal did not place explicit reliance upon the exclusive English jurisdiction clause. Perhaps the most important observation in the case was that of Lord Denning to the effect that a decision on a matter such as this is essentially one of degree on which the judge's view should carry great weight.
- Of more assistance to Mr Toledano is Merrill Lynch v Raffa [2001] CPR Rep 44, a decision of His Honour Judge Raymond Jack QC (as he then was) sitting as a judge of the Commercial Court. In that case there were, simultaneously, civil proceedings in England and criminal proceedings in Egypt and in the latter "the claimants [had] lodged a request for a civil claim in the name of the claimants against the defendant with the effect that if the defendant were convicted, the criminal court would consider the question whether it should order the defendant to pay compensation". The defendant in England applied to set aside service out of the jurisdiction and/or for a stay of the English proceedings, but at the hearing it was accepted on behalf of Mr Raffa that the English court had jurisdiction over the subject matter of the claim. As the judge observed, "the case clearly has a very strong English connection". The judge said this:-
"The reason why two sets of proceedings in respect of the same subject matter will normally be vexatious is that it amounts to a harassment of defendant to make him fight the same battle twice, with the attendant multiplication of costs, time and stress. But, in my view, it will not be vexatious, nor will an election be called for where the claimant has a sufficient justification for bringing the two sets of proceedings.
. . .
I do not consider that the making of a request to the Egyptian prosecutor, that the Egyptian criminal court should in due course consider the question of compensation from Mr Raffa to Merrill Lynch makes the continuance of the English action vexatious or in any way improper or unfair; it provides no grounds for staying the English action."
That case has some obvious superficial resemblance to the present, but an essential difference is that the defendant accepted that the case had a very strong English connection. Here that is not accepted, and moreover the judge has found that all of the claims have an overriding Kazakh feel.
- Under the rubric forum non conveniens the judge set out the competing factors as follows:-
"70. Forum non conveniens. The Defendants rely on a number of what might be called more ordinary issues of forum non conveniens:
i) The First to Fourth Defendants are based in the BVI or Samoa, and, as Mr MacLean conceded in the course of the hearing, could be joined in Kazakhstan as here: the Fifth Defendant is in Liechtenstein: the Seventh and Eighth Defendants are in Dubai, and have undertaken, for the avoidance of doubt, not to challenge the jurisdiction of the Kazakh court in relation to any civil claim that the Claimant may wish to institute against them in respect of the subject matter of this dispute (although no undertaking is proffered to participate in the proceedings): the Fifteenth Defendant, originating from Kazakhstan, is now, it seems, in Ukraine, but there is no realistic prospect of his taking part in the English proceedings in any event: the Tenth to Fourteenth Individual Kazakh Defendants are, or may not be, in Kazakhstan: the Sixth Defendant and the Ninth Defendant companies are both in Kazakhstan.
ii) There is a mass of documents in Kazakhstan – some 32,000 documents were adduced in the criminal trial, and the many witnesses – nearly 300 – who were either called or gave statements in the criminal proceedings either are in, or at any rate amenable to the jurisdiction of, Kazakhstan.
iii) Although there is not the same procedure of disclosure as there is in this jurisdiction, just as is the case in other civil law systems, Lord Goff, in The Spiliada [1987] 1 AC 460 at 482, considered that such differences ought not to be able to constitute a legitimate juridical disadvantage, and in any event, on the facts of this case, it is considerably mitigated by the existence of extensive documentation including more than 32,000 documents, obtained by the prosecution from the Ninth Defendant alone, of which the Claimant had sight, and copies, during the familiarisation periods that, as victim in the criminal proceedings, they were given by the prosecution, in July to September and then November 2010.
71. The Claimant relies on the following factors:
i) The 3% fee, a substantial sum, since it is 3% of US$ 1.1bn is payable by the Claimant (as victim) in Kazakhstan proceedings which would not be leviable here. Field J was prepared to take this into account in Habib Bank Ltd v Central Bank of Sudan [2007] 1 WLR 470 at para 45. Although, as the Defendants point out, that may be avoided if the prosecutor is prepared to bring the civil claim, that is far from certain, and, in any event, it would not apply to the claims against the other Defendants.
ii) Reliance was placed in Kazakhstan on the Sixth Defendant's behalf on the existence of the English proceedings. Although there has been denial by his lawyer of what she is said to have submitted before the court in that regard, and some explanation has been given as to why there was reference to the London proceedings in the Sixth Defendant's appeal as 'not having been taken into account by the lower court', what does not seem in doubt, because it is recorded as the Sixth Defendant's evidence before the lower court in the Protocol of those proceedings on 13 April, just after service of the English proceedings, is that he was, at that stage, willing to litigate in London in civil proceedings, and invited the Kazakh court to leave over consideration of the civil claim in the criminal proceedings on that basis. That however was overtaken by the Sixth Defendant's solicitor's letter of 12 September 2011, sent to the Presiding Judge in the appeal court, enclosing a copy of the English proceedings, and stating the position of the Sixth Defendant namely that "the issues between the parties are properly the subject of proceedings before you and can only be determined in Kazakhstan"."
- The judge then turned to the effect of the exclusive jurisdiction clauses with which I need not deal further. His ultimate conclusions on appropriate forum were however couched in terms of finding exceptional circumstances or strong reasons for not enforcing the agreement by Ds 1-4, 6, 7 and 8 that the subrogated claims should be determined in the English court. Paragraph 75 contains the judge's conclusions:-
"75. I have stepped back and considered the position in the round. Although in this case, as in so many now in the Commercial Court, this jurisdictional dispute has involved large numbers of files (more than thirty) and ten days of hearing, it is still worth bearing in mind Lord Goff's original exhortation that the question of forum non conveniens should be capable of being considered by a judge in the quiet of his room. I conclude that the Claimant has not established that the Commercial Court in England is clearly and distinctly the most appropriate forum, and that there are strong reasons or exceptional circumstances why the subrogated claims under the Loan Agreements should not be confined to the exclusive jurisdiction provided in those contracts. There is an overriding Kazakh feel to all the claims now made. The statements referred to in paragraph 71(ii) do not amount to a waiver by the Sixth Defendant. Almost all the events took place in Kazakhstan; Kazakh law may have an important role to play; all, or almost all, the substantial quantity of documents will be in Kazakhstan, and the statements referred to in paragraph 71(i) above do [not] amount to a waiver by the Sixth Defendant, but, above all, there have been detailed proceedings in Kazakhstan; which have resulted (subject to a possible appeal) in the conviction of the Sixth Defendant and important findings of fact by the Kazakhstan courts, which I have set out in paragraphs 12 to15 above. The evidence to establish conspiracy (or breach of Article 917) and the facts sufficient to establish 'alter ego' will be overwhelmingly in Kazakhstan. This is not a straightforward case by reference to a subrogated claim in contract brought by the Claimant against the Third and Fourth Defendants. Although the civil proceedings have, for the time being, come to an end, the Almaty City Court of Appeal has plainly encouraged the bringing of further civil proceedings, and I do not consider that the 3% fee, if indeed it has to be levied, payable by a nationalised bank in order to pursue alleged fraudulent conspirators in the national courts, is a sufficient juridical disadvantage to outweigh the otherwise appropriateness of the Kazakh forum. "
- Mr Toledano was critical of the reasoning in this paragraph. I put on one side the apparent contradiction in the judge's conclusion as to whether D6 had effectively elected to submit to English jurisdiction – there is plainly a "not" missing in the judge's second reference to it under the rubric of 'waiver'. Much of Mr Toledano's attack has fallen away with the removal from the picture of the subrogated claims and the associated jurisdiction clauses. Mr Toledano does however point out that there would have been detailed criminal proceedings in Kazakhstan in any event and that the findings of fact made by the Kazakh court therein would be inadmissible in proceedings in this jurisdiction. Both statements are obviously correct, but they do not detract from the circumstances that a massive investigation has already taken place in Kazakhstan, to which considerable resources have been devoted. They also do nothing to point to the appropriateness of the English jurisdiction.
- The judge did not deal with Mr Toledano's submission that there is a risk that English law may not be properly applied or may not be applied at all in a Kazakh court. Mr Toledano relied for this purpose upon a short passage in the evidence of Mrs Kim to the following effect:_
"71. Therefore the Kazakh court can, and should, apply foreign law if it is the applicable law. However, in my experience, Kazakh courts are not used to applying foreign law and there is a risk that foreign law will not be applied properly or at all. In my whole career, as a practitioner and as a Judge, I have never come across an instance where Kazakh courts did apply foreign law."
I do not consider that this evidence is sufficient to support the proposition. Simply because the Kazakh court may rarely have been invited to apply foreign law does not lead to the conclusion that there is a risk that, in the event that it is so asked, the Kazakh court will either fail to do so or fail to do so properly.
- Mr Toledano complains that the judge failed to give sufficient weight to the circumstance that Alliance would, if it brought proceedings in Kazakhstan, be required to pay the 3% fee, which of course here amounts to a very substantial sum. It is unattractive that a nationalised bank should characterise as "not in the interests of justice" that it be required to pay the fee required of all litigants in its own national courts. In Habib Bank v Central Bank of Sudan [2007] 1 WLR 470 Field J took into account that court fees in this jurisdiction are less than in Sudan, although it was the claimant Pakistani bank which took the point, not the defendant Central Bank of Sudan. The argument sounds the less convincing when expressed in terms of the percentage fee rather than the figure which it produces, for 3% of US$ 1.1 billion is obviously a great deal of money. I take Mr Toledano's point that here the "juridical disadvantage" to Alliance in having to pay the fee is not counter-balanced by a corresponding juridical advantage to the potential defendants in the Kazakh courts. Even so, I find myself in agreement with the judge that this consideration is not of itself sufficient to outweigh those factors which point to Kazakhstan being the appropriate forum. It should also not be overlooked that the fee will be avoided if the Kazakh State Prosecutor brings the civil claim on Alliance's behalf. Obviously, as the judge observed, it is far from certain that that might occur, but it is what happened in March 2010 when the State Prosecutor brought civil proceedings on behalf of Samruk-Kazyna as I have already described. The judge thought that, in that event, the avoidance of the fee "would not apply to the claims against the other Defendants", see paragraph 71(i) of his judgment. In context this seems to be a reference to the Defendants other than D6. We were not shown the evidence upon which the judge relied in making this observation and the point was not one pursued in argument by Mr Toledano. It may be that there is some confusion here between a claim brought in the civil courts by the State Prosecutor to quantify the compensation awarded by the criminal court, which, obviously, would only involve Ds 6, 11 and 13, and a wholly fresh claim brought in the civil court by the State Prosecutor on Alliance's behalf, which would involve as many of the defendants as the Prosecutor on Alliance's behalf chose to serve.
- Mr Toledano particularly relied upon the following as pointing to the appropriateness of the English forum:-
i) The fact that the judge considered that arguably the entirety of Alliance's case is governed by English law. This fact weighs less heavily in the absence of the express contractual claims and is in any event a factor which can here be given little weight for the reasons explained at paragraph 78 above;
ii) The fact that the Respondents' experts say that under the law of Kazakhstan the pleaded facts give rise to no civil liability. That may be so, but it is the Bank's case that there is civil liability as a matter of Kazakh law. Furthermore, although Mrs Kim cites Article 1117 of the Civil Code, which provides that as regards the delict claims the Kazakh court ought to apply "the law of the country where the act or circumstance occurred which is the ground for the delict" the experts expressed no view as to what conclusion the Kazakh court should reach by application of this principle. Mrs Kim does assert that the Kazakh court should apply the law of BVI and Samoa to the unjust enrichment claims. There is no reason to believe that it will not do so.
iii) The location of the active Defendants, only two of which, D6 and D9, are domiciled and resident within Kazakhstan. The judge had this point well in mind – see paragraph 70(i) of his judgment. Ds 1-4 can be joined in Kazakhstan as they can here. Ds 7 and 8 have undertaken not to contest the Kazakh jurisdiction. D15, who D6 says was responsible for the fraud, is apparently in the Ukraine. He has not acknowledged service of the English proceedings. There is no evidence to suggest that it will be any more difficult to serve him with Kazakh proceedings than it was to serve him with English proceedings. The same is true of Ds 10, 11 and 13. Ds 12 and 14 have not in any event been served with the English proceedings. Again it is pertinent to observe that the location of the Defendants does nothing to promote the appropriateness of the English forum.
iv) Certain acts of the alleged fraud occurred outside Kazakhstan, such as the incorporation of the offshore companies and the activities of the Cypriot lenders, including their dealing with the STRIPS. Again, this may be so, but the persons allegedly orchestrating and carrying out the fraud were all at the material times operating in Kazakhstan and moreover the involvement of jurisdictions other than Kazakhstan does not of itself point to the appropriateness of the English jurisdiction. All it demonstrates is that, whilst having its centre of gravity in Kazakhstan, the dispute has offshore features.
v) The thousands of documents used in the Kazakh criminal trial contained little of relevance and, submits Mr Toledano, the only Defendants likely to have further relevant documents are Ds 1-4 in the BVI and Samoa and D5 in Lichtenstein. Again, this may be so, but it does not shift the centre of gravity of the dispute from Kazakhstan to England.
vi) The Defendants do not have any assets of substance in Kazakhstan, and the judge recognised that an English judgment would be far more readily enforced in offshore jurisdictions such as the BVI than would be a Kazakh judgment. Although there may have been no evidence to this effect, I am prepared, like the judge, to assume that this is likely to be so. Nonetheless, the judge evidently did not consider that this factor weighed sufficiently in the balance to render England as clearly and distinctly the most appropriate forum for the resolution of the dispute.
- We should hesitate long before interfering with the judge's assessment that Alliance has not established that England is clearly and distinctly the most appropriate forum for the resolution of this dispute. The fact that the Claimant will in any event seek to prove its case at trial against the Defendants who have been served but who will take no part in the trial takes the matter little further. To accord weight to that as a factor would encourage the establishment of jurisdiction by collusion, although I do not suggest that that is what has happened here.
- In my judgment there was ample material upon which the judge could reach the conclusion which he did. Standing back from the welter of arguments deployed before us, this dispute has very little if any real connection with this jurisdiction. None of the alleged torts was committed here, none of the agreements was made here and none of the loss was suffered here. None of the parties was domiciled or resident here. In reality the only connection is that some of the instruments used in order to further the fraud were expressly governed by English law. That is however incidental to the real essence of the dispute, which concerns alleged dishonesty on a grand scale by the officers of a bank in Kazakhstan. There is no real dispute as to the effect of the English law agreements, and in any event the action is brought neither to enforce those agreements nor to annul or to rescind them. Insofar as the action is sought to be brought to enforce agreements arguably governed by English law, it is the implied contracts of indemnity which are sought to be enforced against avowedly insolvent parties. That aspect too is manifestly incidental to the real essence of the dispute, with reliance upon it as a means of founding jurisdiction no more than an afterthought. It is not in my judgment a surprising conclusion that England is not clearly or distinctly demonstrated as the appropriate forum in which this dispute should, for the ends of justice, and in the interests of the parties, be determined.
- This conclusion renders it unnecessary to deal with the allegations of non-disclosure.
- I would dismiss this appeal. It follows that the Worldwide Freezing Order should now be set aside, subject to any argument concerning its continuation pending a possible further appeal.
Lord Justice Elias :
- I agree.
Lord Justice Lloyd :
- I also agree.
