A recent Court of Appeal judgment has held that the English court is entitled to accept jurisdiction to hear substantive claims involving both English “anchor” defendants and other foreign defendants, even if a claimant’s sole purpose in bringing the English proceedings is to sue the foreign defendants in the same proceedings. The judgment concerned the interpretation of the Lugano Convention and may have significant implications for complex international disputes.
The case of JSC Commercial Bank Privatbank v Kolomoisky and others  EWCA Civ 1708 considered jurisdictional issues concerning substantial fraud claims against co-defendants domiciled in England, Switzerland and the BVI.
In 2017, JSC Commercial Bank Privatbank, a Ukranian bank, issued proceedings in the English court alleging fraudulent misappropriation of several billion dollars against Mr Kolomoisky and Mr Bogolyubov, founders and former majority shareholders of the bank. The claim was also brought against companies controlled by Mr Kolomoisky and Mr Bogolyubov and which were said to have been involved in the fraud, some of which were registered in England and some in the BVI. Mr Kolomoisky and Mr Bogolyubov were both domiciled in Switzerland and the bank therefore asserted English jurisdiction against them under the Lugano Convention.
The defendants challenged the jurisdiction of the English court and argued that the sole object of the claims against the English defendant companies was to be able join the Swiss domiciled defendants into English proceedings.
At first instance the judge ruled that the English court did not have jurisdiction as regards the Swiss and BVI defendants. He also stayed the proceedings against the English defendants, based on pending defamation proceedings brought by the defendants in Ukraine. The judge further held that a substantial freezing order granted against the defendants in the proceedings should be discharged. The bank appealed the order.
The key issues for the Court of Appeal to determine were whether:
- Article 6(1) of the Lugano Convention is subject to a ‘sole object’ test
- The English proceedings should be stayed in favour of the Ukranian proceedings
- There had been material non-disclosure by the bank when applying for the freezing order
Whether Article 6(1) of the Lugano Convention is subject to a ‘sole object’ test
As a starting point, the Lugano Convention provides, in common with other EU instruments on jurisdiction, that persons shall be sued in the state of their domicile. However, Article 6(1) also provides that, in the case of co-defendants, one of the defendants may be sued in the state where any one of them is domiciled, provided that “the claims are so closely connected that it is expedient to determine them together to avoid the risk of irreconcilable judgments from separate proceedings”.
The issue on appeal was whether the requirement for claims to be closely connected is subject to a further qualification such that the provision is not engaged if the proceedings are commenced with the sole object of removing a defendant from the jurisdiction of his domicile.
The Court of Appeal rejected the defendants’ suggestion of this further “sole object” qualification. As such, Article 6(1) of the Lugano Convention was engaged, even if the bank’s sole object in commencing proceedings against the English companies was to sue the Swiss domiciled defendants in the same forum. Newey LJ gave a dissenting judgment on this issue, but this did not impact the outcome of the appeal.
In reaching its decision, the Court of Appeal considered the development of the drafting of the article and the relevant CJEU caselaw, noting that there was in fact no authority on the issue which bound the court. The court found that the precise terms of Article 6(1) and the history of its drafting did not support the existence of a sole object test; it was relevant that Article 6(2) contained an express sole object test, whilst Article 6(1) did not.
The court held that an additional requirement which was based on the intention of the claimant would introduce an “undesirable degree of uncertainty” which would undermine the Lugano Convention aims of certainty and predictability. The court referred to previous CJEU decisions which held that the vice of using Article 6(1) to remove a defendant from his home court was met by the condition that claims must be closely connected.
The court did explain that reliance on Article 6(1) was however subject to the principle against abuse of law, in terms of preventing any artificial fulfilment of the close connection condition. Examples given were naming a fictitious anchor defendant or knowingly commencing inadmissible proceedings.
In this case, the bank had a sustainable claim against the English defendants which it intended to pursue to judgment, in combination with the claim against the Swiss defendants. Accordingly, it was entitled to rely upon Article 6(1) even if its sole object in bringing that claim was to be able to sue the Swiss domiciled defendants in the same proceedings. However, the court found that this was not in fact the sole object of the bank and it was satisfied, on an objective assessment of the underlying facts, that the ability to obtain disclosure from the English defendants provided a real reason for commencing the proceedings. The bank had referred to the advantages it perceived in the English courts as a venue for major commercial litigation, though the court noted that if this had been the only reason for commencing proceedings, this would offend against a sole object test.
Stay of proceedings
The first instance judge held that had he ruled that the English court in fact had jurisdiction over the Swiss defendants, he would have granted a stay of the English proceedings because of the proceedings pending in Ukraine. Whilst recognising that, since Ukraine is not an EU or Lugano Convention state, the provisions of Article 28 of the Lugano Convention did not apply directly, the judge held that the article could be applied “reflexively” or by analogy. He stayed the proceedings against the English defendants pursuant to Article 34 of the Recast Brussels Regulation. Both Article 28 of the Lugano Convention and Article 34 of the Recast Brussels Regulation provide that where there are related actions which have been commenced first in another court, any other court may stay its proceedings.
The Court of Appeal agreed that Article 28 of the Lugano Convention should be given reflexive effect. A reflexive interpretation does not involve an impermissible extension of its scope but instead a recognition that the same principles which underlie those articles should be applicable in the case of proceedings in a third state. This would be in line with the purpose of the various European Conventions and would avoid a risk of inconsistent judgments.
The court then considered the application of Article 28 of the Lugano Convention and Article 34 of the Recast Brussels Regulation and specifically the threshold question as to whether the English proceedings and the Ukranian defamation proceedings were “related”, in the sense of being so closely connected that it is expedient to determine them together to avoid the risk of irreconcilable judgments.
The court held that the word expedient in this context was akin to “desirable” that the actions should be heard together, rather than “practicable” or “possible” that the actions can be heard together. The bank had argued that consolidation of the bank’s claim with the defamation proceedings was not in fact possible but the court found in this case that the actions were related, even if they could not be consolidated, and therefore the judge did have jurisdiction to grant a stay of the English proceedings.
However, the court held that the first instance judge had exercised his discretion to grant a stay on a fundamentally erroneous basis. Had the judge appreciated on the facts before him that the Ukrainian court had considered the defamation proceedings unmeritorious, he should have refused to grant a stay. This conclusion was unaffected by the fact that, subsequent to the judgment, the Supreme Court of Ukraine allowed a further appeal of the defamation action.
The fact that, as a matter of procedure, the two sets of proceedings could not be consolidated and heard together in the same court in Ukraine was also a “compelling reason” for refusing a stay as the risk of inconsistent findings would remain. Finally, the court accepted that it would be entirely inappropriate to stay an English claim involving fraud and money laundering on an “epic scale” in favour of a defamation claim in Ukraine. As such, the stay granted against the Swiss domiciled defendants by analogy with Article 28 of the Lugano Convention and the stay granted against the English defendants under Article 34 of the Recast Brussels Regulation should be set aside.
The court found that if the claim against the Swiss and English defendants was to continue then it inevitably followed that the BVI defendants were necessary or proper parties to that claim and therefore the judge was wrong to set aside or stay the claim against them. Accordingly, the claim should continue before the English court as against all defendants.
The bank sought permission to appeal in respect of further issues relating to the freezing order, including as to whether there had been material non-disclosure of relevant matters to the court. The first instance judge had concluded that there had been breaches of the bank’s duty of disclosure and criticised the bank for failing to disclose full details of repayments made and for exaggerating the role of the English and BVI defendants in the fraud.
The court summarised the relevant legal principles, noting that the duty of disclosure applies not only to known facts but also facts might would have been known if proper inquiries were made and that whether an undisclosed fact is of sufficient materiality to justify discharge of the order will depend upon the circumstances of the case and the importance of that fact to the issue to be decided. The court did not consider in this case that there had been any material non-disclosure in respect of repayment details but that the bank should have gone further than it did in respect of the role of the English and BVI defendants. It should have spelled out that payments passed through these companies only fleetingly, but any failure was not deliberate and would not have made a difference to the decision of the judge granting the order. As such, it was not appropriate to discharge the freezing order.
This is a significant judgment which clarifies the law relating to the interpretation of Article 6(1) of the Lugano Convention. It means that the English court will accept jurisdiction to hear claims involving an English “anchor” defendant, even where the claimants’ sole purpose in bringing the proceedings is to sue a foreign defendant in the same proceedings. The safeguard against abuse of this provision is the requirement that such claims must be closely connected, and such connection cannot be artificially fulfilled.
Whilst the judgment relates to the more limited Lugano Convention regime, it remains to be seen whether the principle will come to be replicated across similar European regimes. The judgment may in any event further encourage claimants to use English anchor defendants to be able to access the advantages offered by litigating before the English courts, including a wider scope of disclosure than in many other jurisdictions.
The court’s adoption of a “reflexive” approach to the interpretation of Article 28 of the Lugano Convention is also important as it not only clarifies the position but also ensures greater consistency with the other European instruments as regards proceedings pending in third states.
Finally, the judgment provides a helpful reminder of the importance of the duty of full and frank disclosure whenever making without notice applications. The detail of the proposed application must be considered carefully by the legal team to ensure that all necessary facts have been investigated and disclosed.
A copy of the full judgment is available here.