Grounds of appeal


In Baturina v Chistyakov ([2014] EWCA Civ 1134) the claimant/appellant – Elena Baturina, reportedly Russia's richest and most powerful female oligarch – challenged a ruling that her claim against defendant/respondent Alexander Chistyakov, a Russian businessman with interests in various Russian real estate and energy companies, should be stayed in favour of the Russian courts. The Court of Appeal considered whether the stay should be set aside.


On February 28 2008 Baturina and Chistyakov entered into a project implementation agreement in relation to development projects in Morocco. The agreement recited the intention of the parties to engage in what was essentially a joint venture to implement the projects. The agreement was to be governed by English law but there was no agreement as to jurisdiction.

In the same year, Inteco CJSC (a company substantially owned by Baturina at the time) made two loans to Sylmord Trade Inc, said to be beneficially owned or controlled by Chistyakov. The purpose of the loans was to provide financial assistance in relation to the projects to Andros Bay Holding Offshore SARL Company, intended to be the holding company for the venture.

Baturina subsequently discovered that only a small proportion of the loans were paid to Andros. The remainder was transferred to various companies, the majority of which were incorporated in the British Virgin Islands and two of which were beneficially owned by Chistyakov or one of his associates.

On February 29 2010 the right to repayment under the loans was assigned by Inteco to Baturina for full value – that is, for the full amount of the principal and interest outstanding. She then sold Inteco.

On November 2 2012 a statutory demand for repayment of the loans was made of Sylmord (then in liquidation) on behalf of Baturina, but no proceedings were issued.

On January 22 2013 Baturina issued proceedings against Chistyakov to rescind the agreement and claiming damages for breach of contract and deceit/misrepresentation. The deceit/misrepresentation claim was pleaded on the basis of various representations made by Chistyakov, which Baturina allegedly relied on when she caused the loans to be made.

On April 24 2013 Chistyakov filed an application notice seeking a stay of the proceedings, arguing that the Russian courts should have jurisdiction. On November 14 2013 the first-instance judge held that Russia was a more appropriate forum than England and therefore granted the stay. After the judgment was handed down Baturina sought permission to appeal.

Grounds of appeal

There were four grounds of appeal. The two most significant grounds were as follows:

  • The conflict of laws ground – the first-instance judge had been incorrect to find that, applying English conflict of law rules, the deceit/misrepresentation claim was governed by Russian law.
  • The validity ground – in Russia it would not be possible to claim for the pleaded losses, so the practical effect of staying the action in favour of the Russian courts would mean that an arguably valid claim in English law could not be maintained.

Conflict of laws ground
Both parties agreed that the relevant legislation to apply to determine what law governed the deceit/misrepresentation claim was the Private International Law (Miscellaneous Provisions) Act 1995. Under Section 11 of the act ('the general rule'), the applicable law is the "law of the country in which the events constituting the tort… in question occur". In this case both parties agreed that this would be Russia.

At issue was whether Section 12 (the 'displacement of the general rule'), to which Section 11 was subject, would be engaged. Baturina argued that as the parties had specifically considered the question of applicable law and decided that their transaction (as a whole) was to be organised according to the principles of English law, this meant that per Section 12, it was "substantially more appropriate for the applicable law to be that of England".

The first-instance judge rejected this submission and disagreed that Section 12 was engaged. First, he thought that the agreement could have been drafted so as to apply English law expressly to tortious claims connected with the agreement, but the parties had not done so. Second, he disagreed that the transaction was "organised" by reference to English law, stating that the transaction as a whole was governed by various agreements, a number of which were governed by Russian law and provided for the Russian courts' jurisdiction.

Baturina submitted that where there has been express discussion about the law of the contract during the negotiations which gave rise both to the alleged misrepresentation and the contract, it was substantially more appropriate that that law should govern any misrepresentation claim (which was the position in the successor legislation to the Private International Law (Miscellaneous Provisions) Act – the EU Rome II Regulation). The cases of Kingspan Environmental v Borealis A/S ([2012] EWHC 1147) and Fiona Trust v Skarga ([2013] EWCA Civ 275) were cited in support.

The Court of Appeal did not consider that the factors relied on by the first-instance judge were of a significant weight and held that had the decisions referenced above been cited to the first-instance judge, it was likely that he would have reached a different conclusion. That conclusion would, of itself, have required either the Court of Appeal (or, on remission, the Commercial Court) to consider whether Russia was clearly the appropriate forum. However, given the Court of Appeal's conclusion in relation to the validity ground, this was not necessary.

Validity ground
The Court of Appeal noted that this ground of appeal was premised on the assumption that Baturina's claims, as pleaded, were maintainable in English law. It considered that, in fact, the claims were not maintainable.

Baturina, in quantifying her loss, had relied on the observations of Lord Bingham in Johnson v Gore-Wood ([2002] 2 AC 1):

"Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding."

The rationale for the decision in Johnson v Gore-Wood was that the loss suffered by the shareholder is linked to and inseparable from general losses of the relevant company ('reflective loss'). Like the relevant company in Johnson v Gore-Wood, Inteco had no cause of action, in this case because none of the representations were made to it. However, unlike that company, Inteco had not actually suffered a loss because it had assigned the right to repayment under the loans to Baturina for full value.

The Court of Appeal concluded that the claim as pleaded, whether in deceit or breach of contract, was unsustainable. On this basis, it held that there was no point in granting a stay in favour of Russia:

"[The English courts] should not export to a foreign jurisdiction on the supposed footing that it is a clearly more appropriate forum – a claim which, to English eyes, is (a) governed by English law in relation to both tort and contract; and (b) appears in English law to be unsustainable. For such a claim there is no natural forum, not because several factors point to different jurisdictions but because the claim itself is bad."

The court therefore allowed the appeal and set aside the order staying the action.


The decision leaves the case in an interesting position. Baturina will now need to make an application to amend her pleaded case; otherwise, Chistyakov is likely to apply to strike it out. Chistyakov will no doubt resist any such amendments, or in the alternative will attempt to strike the revised claim out.

The court gave some consideration as to how the case might be restated, which included the following suggestion based on the reflective loss principle:

"at some stage Inteco suffered a loss which affected the value of [Baturina's] shares… and that her purchase of the Loans for full value should not be treated as cancelling out that loss… since, in a sense, it was done in mitigation of it."

This case, and the court's suggested reformulation of the claim, illustrates the complexities and difficulties that can arise in making claims based on the reflective loss principle, which is a relatively unclear and developing area of English law. It also underscores the importance of paying careful attention to setting out a pleading in a coherent manner; Baturina essentially has to start again, an unsatisfactory position to be in, having incurred the time and cost of preparing for two court hearings over the past year.

For further information on this topic please contact Simon Hart or Chris Whitehouse at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ( or The RPC website can be accessed at