AK Investment CJSC v Kyrgyz Mobil Tel Ltd

Court:Privy Council
Docket Number:Appeal No 0064 of 2009
Judge:LORD COLLINS
Judgment Date:10 Mar 2011, 10 Mar 2011
Jurisdiction:UK Non-devolved
Neutral Citation:[2011] UKPC 7

[2011] UKPC 7

Privy Council

before

Lord Phillips

Lord Mance

Lord Collins

Lord Kerr

Lord Clarke

Appeal No 0064 of 2009
Appeal No 0065 of 2009
Appeal No 0066 of 2009
Appeal No 0067 of 2009
AK Investment CJSC
(Appellant)
and
Kyrgyz Mobil Tel Limited

and Others

(Respondents)
Altimo Holdings and Investment Limited

and Others

(Appellants)
and
Kyrgyz Mobil Tel Limited

and Others

(Respondents)
CP-Crédit Privé SA
(Appellants)
and
Kyrgyz Mobil Tel Limited

and Others

(Respondents)
Fellowes International Holdings Limited
(Appellant)
and
Kyrgyz Mobil Tel Limited

and Others

(Respondents)

Appellant

James Ramsden

Jennifer Thelen

(Instructed by Steptoe & Johnson)

Appellant

Stephen Smith QC

Simon Adamyk

(Instructed by Lovells LLP)

Appellant

Bankim Thanki QC

Edward Levey

(Instructed by DLA Piper UK LLP)

Appellant

Guy Phillips QC

(Instructed by White & Case LLP)

Respondent

Graham Dunning QC

Nicholas Harrison

(Instructed by Squire Sanders & Dempsey)

LORD COLLINS

I Introduction

1

At the heart of this unusual and complex case is a struggle between two Russian groups concerning a telecommunications business in Kyrgyzstan owned, or formerly owned, by BITEL LLC ("BITEL"), a Kyrgyz company. This appeal arises out of proceedings commenced in the Isle of Man by BITEL to enforce a Kyrgyz judgment at common law against the Respondents, Kyrgyz Mobil Tel Ltd, Flaxendale Ltd and George Resources Ltd ("the KFG Companies"), which are all incorporated in the Isle of Man, and are owned by Mobile TeleSystems OJSC ("MTS"), the largest mobile telecommunications operator in Russia, which is listed on the New York Stock Exchange.

2

The KFG Companies counterclaimed against BITEL and sought and obtained permission to join thirteen additional defendants to the Counterclaim and serve them out of the jurisdiction. The Appellants are six of those defendants to counterclaim, who applied, successfully, to Deemster Doyle for an order setting aside the order for service out of the jurisdiction. The Deemster's decision was reversed by the Staff of Government Division, and it is from that decision that the Appellants appeal.

3

The first three Appellants, Altimo Holdings and Investments Ltd, a BVI company ("Altimo BVI"), 000 Altimo, a Russian company ("Altimo Russia") and Sky Mobile LLC, a Kyrgyz company ("Sky Mobile"), are part of a very substantial Russian conglomerate known as the Alfa Group, and are collectively referred to here as the "Alfa Parties." The other Appellants are Fellowes International Holdings Ltd, a BVI company ("Fellowes"), CP-Crédit Privé SA, a Swiss fiduciary ("CP-Crédit") and AK Investment CJSC, a Kyrgyz company ("AK Investment"). Fellowes, CP-Crédit, and AK Investment are each separately represented, but generally in this advice the Appellants will be referred to collectively, except where the context requires otherwise.

4

In short this is an appeal about whether the Appellants are necessary or proper parties to the Counterclaim by the KFG Companies in the Isle of Man, or whether the appropriate forum is Kyrgyzstan, as the Appellants contend.

5

This, like many such cases, is not really a dispute about forum. The connection which this case has with the Isle of Man is that BITEL seeks to enforce a Kyrgyz judgment by proceedings in the Isle of Man against the KFG Companies, three companies incorporated in the Isle of Man, who seek to counterclaim against the Appellants in relation to matters which occurred wholly outside the Isle of Man, and primarily in Kyrgyzstan. The KFG Companies accept that Kyrgyzstan is the natural forum for the pursuit of their claims, in the sense of being the jurisdiction with which their claims have their most real and substantial connection: Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460, at 478, per Lord Goff of Chieveley.

6

But the practical reality of the matter is that if the KFG Companies are confined to their remedies against the Appellants in Kyrgyzstan they will not in fact be able to pursue any of their claims there. Consequently, although this is in form a case about the appropriate forum, in reality it is a case in which, if the Isle of Man is not the appropriate forum, the KFG Companies will have no practical remedy at all.

7

Experience has shown that Lord Templeman was being over-optimistic when he said, in Spiliada (at 465), that in disputes about the appropriate forum the court would not be referred to other decisions on other facts, and that submissions would be measured in hours and not days. But this case has been excessively complicated by any standards. The hearings before the Deemster and the Staff of Government Division each lasted for 4 days or more. The hearing before the Board lasted 4 days. The written cases of the parties exceeded 200 pages, and more than 30 volumes of documents were placed before the Board, containing almost 14,000 pages, as well as 170 authorities in 12 volumes. The core bundle alone consisted of six volumes. The list of "essential" pre-reading for the Board listed documents totalling some 700 pages. All of this was wholly disproportionate to the issues of law and fact raised by the parties.

II The facts

8

The factual background is complex. Many of the facts are disputed and nothing in this advice is intended to prejudge any question of fact which may arise in subsequent hearings.

9

By early 2005 BITEL was the leading supplier of mobile telephone services in Kyrgyzstan. It was owned by the KFG Companies, whose ultimate beneficial owners were then the son of the President of Kyrgyzstan and the Deputy Minister for Transport and Communications. By the end of 2005 the ultimate owners of the KFG Companies had become MTS.

The Transfer Agreement between the KFG Companies and IPOC/KMIC

10

By an agreement dated May 30, 2003 (the "Transfer Agreement"), the KFG Companies agreed to sell their interest in BITEL to IPOC International Growth Fund Ltd ("IPOC"), a Bermudian mutual investment fund, for approximately US$22.4 million. Under the Transfer Agreement, IPOC had the right to transfer its interest in BITEL to Kyrgyzstan Mobitel Investment Company Ltd ("KMIC"), which was to be incorporated as a subsidiary of IPOC. If completion of the sale to IPOC did not occur prior to December 1, 2003, the Transfer Agreement was to terminate automatically.

11

The Transfer Agreement was governed by English law and included an arbitration clause, which provided that any dispute arising out of the agreement was to be referred to arbitration under the rules of the London Court of International Arbitration ("LCIA").

12

KMIC was subsequently incorporated and on October 6, 2003 IPOC notified the KFG Companies of its intention to assign its rights and obligations under the Transfer Agreement to KMIC. Unknown to the KFG Companies, by a written agreement dated October 1, 2003 between IPOC and Fellowes, Fellowes agreed to purchase from IPOC 100% of its shares in KMIC conditionally upon the completion of the Transfer Agreement. That agreement was also governed by English law, with provision for arbitration in London under UNCITRAL Rules. IPOC then assigned its interest in BITEL under the Transfer Agreement to KMIC on October 8, 2003.

13

In late 2003 a dispute arose between the KFG Companies, IPOC and KMIC. The KFG Companies refused to complete the sale by December 1, 2003. Consequently, KMIC initiated arbitration proceedings on March 31, 2004 seeking specific performance of the Transfer Agreement or, alternatively, damages for breach of contract.

April 2005 Judgment

14

In December 2004 the Alfa group, through Altimo BVI, purchased a controlling interest in Fellowes. In March 2005, a revolution in Kyrgyzstan led to the resignation of President Akaev, who left the country. The then beneficial owners of the KFG Companies, who (as indicated above) were associated with the former regime, also left the country.

15

On March 29, 2005 Fellowes (which was not a party to the Transfer Agreement, but had agreed to purchase KMIC from IPOC) initiated proceedings in the Bishkek Interdistrict Economic Court in Kyrgyzstan against the KFG Companies alleging a breach of the Transfer Agreement and seeking specific performance directly in its own favour.

16

On April 15, 2005, the Bishkek Interdistrict Court ordered specific performance of the Transfer Agreement in favour of Fellowes in the absence of any representatives of the KFG Companies. The Court held that Fellowes and the KFG Companies had entered into the Transfer Agreement, which was duly signed by them, and in the dispositive part of the Judgment held that Fellowes had the right to own the shares in BITEL upon payment by Fellowes (which was later made) of US$20.5 million to the deposit account of the Kyrgyz Ministry of Justice, such sum being the balance of the purchase price (the "April 2005 Judgment"). The Court ordered that Fellowes be registered as the owner of BITEL.

17

The KFG Companies claim that the April 2005 Judgment was obtained by fraud, in proceedings which were opposed to natural justice, and in a manner which would in the Isle of Man be regarded as contrary to public policy. The KFG Companies say that there was no arguable basis at all for Fellowes' claim, as the party entitled to enforce the Transfer Agreement was KMIC not Fellowes, and even if Fellowes had been a party it would have been bound by the arbitration clause in the agreement, to which the Bishkek Interdistrict Court would have been obliged to give effect as Kyrgyzstan is a party to the New York Convention on the recognition and enforcement of foreign arbitral awards.

Injunctions in England and BVI

18

On May 10, 2005, Andrew Smith J, sitting in the Commercial Court in England (the seat of the arbitration), on application by the KFG Companies, granted an injunction...

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