The Court of Appeal has upheld a finding by the High Court that a trial should be held in England rather than Russia because of concerns about the fairness of Russian judicial process. Michael Cherney v Oleg Deripaska [2009] EWCA Civ 849 concerned an application by Michael Cherney to serve proceedings out of the jurisdiction on the well-known Russian business tycoon Oleg Deripaska in connection with a long-running commercial dispute.

The High Court held that although the defendant had shown Russia to be the natural forum for trial of the action, the claimant had demonstrated a risk that he would not receive a fair trial there because of the defendant's close links to and ability to influence instruments of the Russian state, coupled with the approach of the Russian Arbitrazh courts to matters of strategic importance to Russia. The Court of Appeal held that the first instance judge was entitled to make such a finding.

The case demonstrates that the English courts will, in appropriate cases, not shy away from delivering judgments apparently critical of foreign judicial process in considering the appropriate forum for resolving a dispute. It also underlines the factual nature of that assessment and the limited role of the appellate courts in the process.

Facts

The dispute related to ownership of Russian Aluminium ("Rusal"), the world's largest aluminium producer. Mr Cherney alleged that during March 2001 he met Mr Deripaska in London and entered into an agreement under which Mr Deripaska agreed (inter alia) (i) to hold 20% of the shares in Rusal on trust for Mr Cherney, (ii) to sell them; and (iii) to account to Mr Cherney for the proceeds.

Rusal merged with two other companies in 2007 to form United Company Rusal ("UCR"). The effect of the merger was that the former shareholders of Rusal held 66% of UCR. Mr Cherney therefore alleged that Mr Deripaska held 20% of 66% (13.2%) of UCR on trust for him, worth approximately $4.35 billion.

First instance decision

Mr Cherney sought to establish English jurisdiction on various grounds, including that the agreement upon which he based his claim was made in England.

In a detailed and carefully reasoned judgment ([2008] EWHC 1530 (Comm)), Christopher Clarke J found that the court had a basis for exercising its discretion to take jurisdiction since it was common ground that, if the relevant agreement was made, it was made in England.

However, in considering whether the English court was the proper place for the proceedings to be brought, the "natural forum" was Russia. In other words, the dispute was most closely associated with Russia and the Russian courts.

In deciding on the appropriate forum, the court applies the two stage test from The Spiliada [1987] AC 460, namely it:

(i) identifies the natural forum, i.e. that with which the case is most closely connected; and

(ii) asks whether there are any considerations of justice which should prevent the court from declining jurisdiction in favour of the natural forum, in this case, Russia.

On the second part of the test, following a detailed assessment of a large amount of evidence, the judge found that if the English courts did not take jurisdiction, Mr Cherney would never take the matter to trial in Russia as a result of a well-founded fear for his own safety. There was also a significant likelihood of Mr Cherney being prosecuted if he returned to Russia, with a real possibility that this would be as a result of Mr Deripaska using his influence to encourage the authorities to prosecute, and a "distinct possibility that the charges would be trumped up".

As regards the question whether Mr Cherney would receive a fair trial in Russia, the judge referred to the need for "positive and cogent evidence". With that in mind he noted that it was common ground between the experts that, in certain cases, the Arbitrazh courts in Russia cannot necessarily be expected to perform their task fairly and impartially, such as where "the outcome will affect the direct and material strategic interest of the Russian state".

The judge then found that the affairs of Rusal and Mr Deripaska's group of companies were of considerable and strategic importance to the Russian state, and there was a close link between the Russian state and Mr Deripaska. Thus there was "a significant risk of improper government interference if Mr Cherney were to bring the present claims in Russia".

Notably, the judge made clear that he was not finding that a fair trial could never take place in Russia; simply that there were inherent risks in the current proceedings.

The English court therefore took jurisdiction. The judge recognised that "the parties are not strangers to England" and that neither would suffer prejudice if the matter were heard in England.

The judge granted leave to appeal because he considered there was an arguable point concerning the second stage in The Spiliada test.

The Court of Appeal

Mr Deripaska's appeal rested on three questions, two of which are relevant:

  1. If a judge has concluded in a service-out application that the natural forum is somewhere other than England, can he still find England to be the appropriate forum for the trial?
  2. If the answer to that first question is yes, in what circumstances can he so conclude; and did the judge (a) direct himself appropriately and (b) if so, did he have evidence, or evidence of sufficient cogency, on which he could reach the conclusion he did?

On the first question, the Court of Appeal considered the distinction in The Spiliada between the "natural" forum (with which the dispute is most closely connected) and the "proper" forum (for the interests of all parties and the ends of justice). That distinction, held the Court of Appeal, highlighted that the answer to the first ground of appeal must be in the affirmative.

On the second question, the Court of Appeal noted that in displacing the natural forum, there is no

"requirement for 'cogent evidence' or any particular kind of evidence to establish all other factors which may lead the court to be persuaded that, despite somewhere else being the natural forum, England is the forum where it is in the interests of all parties and the ends of justice for the case to be tried. The requirement is that the plaintiff… should 'clearly establish' that England is the appropriate forum in that sense."

The requirement for "cogent evidence" related only to allegations that the claimant would not receive a fair trial abroad.

The Court of Appeal then reviewed each of Christopher Clarke J's key findings of fact and concluded "it seems… to be an impossible contention that the judge did not have evidence or indeed 'cogent evidence'."

The court noted that "in conducting that exercise the Court of Appeal should be slow to interfere with the judge's assessment of the affidavit evidence" as "It is not the function of the Court of Appeal to go through the whole exercise again unless it can be shown that the judge has misdirected himself in some way."

The judgment also clarified that the first instance judge need not be satisfied that the threatened injustice in the natural forum would in fact occur; only that the judge should weigh up the likelihood of it occurring.

Comment

Whilst the appeal is a blow for Anglo-Russian judicial comity, it is an example of the court using the tools available to it to find that a claimant might not receive justice in the natural forum. Whereas a lack of litigation funding in the natural forum has previously provided the court with a reason to displace it in favour of England (see Connelly v RTZ [1997] UKHL 30), it is more unusual that allegations concerning the integrity of the system of judicial administration in a friendly foreign state have been relied on successfully.

Recognising the possible implications of the decision, the Court of Appeal repeated observations from The Abidin Daver ((1984) AC 398 HL) that "allegations of a kind that impugn the integrity of a foreign state should neither be made nor entertained lightly, but must be distinctly alleged and supported by positive and cogent evidence" but that "I do not think that the court is precluded on the grounds of comity from considering them in a proper case" (per Moore-Bick LJ).

Interestingly, in Pacific International Sports Clubs Ltd v Soccer Marketing International Ltd and others [2009] EWHC 1839 (Ch), decided in the wake of Cherney, the court was faced with allegations of judicial corruption and political influence in the Ukraine. Although the case was decided on other grounds, Blackburne J "not without considerable hesitation" doubted that the evidence in question "quite crosses the threshold of cogency that the jurisprudence required" in forum conveniens cases. As well as the case having almost no connection with England and raising novel questions of Ukrainian law, the party making the allegations as to corruption seemed content to litigate in the Ukraine when it suited him. Click here for more details.

Although Cherney was an extreme case, it shows that the court will not shy away from harsh messages in appropriate cases and that the doctrine of forum conveniens is alive and well for use where the European Judgments Regulation does not apply.