Avonwick Holding Ltd v Azitio Holdings Ltd

Hearing date: 10 May 2019

Approved Judgment

This is the judgment on an application dated 14 February 2019 (the “Set Aside Application”) made by the 14th and 15th defendants, Ms Shchygolyeva and Mr Udovenko, to set aside the order for alternative service made by Cockerill J on 3 January 2019 following an ex parte hearing in December 2018 (the “December Hearing”).

There is also before the court an application (the “Validation Application”) by the additional claimants, Dargamo Holdings Limited (“Dargamo”) and Sergiy Taruta (the “Taruta parties”) dated 13 March 2019 for an order under CPR 6.15 (2) that service of the relevant documents on Reed Smith LLP at their London offices (by sending them via email and post on 12 March 2019) amounted to good service.

Evidence

In support of the Set Aside Application the court has a witness statement of Benjamin Summerfield dated 14 February 2019, a solicitor in Reed Smith LLP and subsequently a witness statement in opposition to the Validation Application dated 3 April 2019.

In opposition to the Set Aside Application for the Taruta parties the court has a witness statement of Michael Roberts, a partner at Hogan Lovells International LLP (“Hogan Lovells”), solicitors instructed by the Taruta parties, dated 13 March 2019.

The claimant, Avonwick Holdings limited (“Avonwick”) and the first, third and fourth Third Parties (the “Gaiduk parties”) were represented at the hearing but made no substantive submissions on the applications.

Background

In August 2016 Avonwick brought a claim (the “Avonwick Claim”) in misrepresentation, deceit and conspiracy to injure against Messrs Taruta and Mkrtchan and their corporate vehicles, Azitio Holdings Ltd (“Azitio”) and Dargamo. The allegations related to the purchase price paid to the claimant for its interest in Industrial Union of Donbass (“IUD”), the sum claimed being over $1bn.

The Taruta parties then brought additional claims (the “Original Claims”) alleging that the sale of the interest in IUD was part of a larger transaction which included the transfer by Mr Gaiduk and/or his wife and/or his companies of its interest in OJSC Ukrainian Mining and Mettalurgical Company (“UGMK”) which are alleged to have been transferred to companies owned and controlled by Mr Mkrtchan or to other parties.

In June 2018 the Taruta parties sought to bring further claims against Oleg Mkrtchan and Azitio (the “Mkrtchan parties”), in trust and under s423 Insolvency Act 1986 (the “New Claims Applications”).

At a hearing in September 2018 (the “September Hearing”) Cockerill J granted the New Claims Applications against Oleg Mkrtchan and the 6–13 ^th Third Parties.

Evidence given by Mr Braithwaite, a solicitor acting on behalf of the Mkrtchan parties (Tenth witness statement of 23 July 2018) suggested that the applicants (through corporate entities, Melgred Limited, Lanacomo Limited, Leadpoint Limited and Trotio Holdings Limited) and not Mr Mkrtchan held an interest in UGMK. In October 2018 there was therefore a further application (the “Further Application”) which was to join the 14 ^th to 20 ^th third party defendants (i.e. including the applicants) as third parties to both the Original Claims and the New Claims as well as an application for permission to serve out of the jurisdiction and in respect of the applicants, for alternative service. The applicants are domiciled in Ukraine and therefore would have to be served in accordance with the Hague Convention unless an order was made permitting alternative service under CPR6.15.

Following the hearing in December 2018 (the “December Hearing”) by order of 3 January 2019 Cockerill J granted the Further Application, including permission to serve out of the jurisdiction and to effect service by email to Azito and/or post to Covington and Burling LLP (“Covington”).

A trial of the Original Claims is due to take place in October 2019 (an application to adjourn that trial having been refused). In the order of 21 December 2018 Cockerill J ordered that the future management of the claims so introduced against the 14 ^th–20 ^th third parties, including which aspects of those claims would be heard at the October 2019 trial, was to be addressed at a CMC.

Following the order of 3 January 2019, the documents were served in accordance with that order on Covington on 7 February 2019.

The Set Aside Application

The Set Aside Application is stated to be made pursuant to CPR 23.10 and/or under the court's general case management powers under CPR 3.1. The grounds on which the applicants seek to set aside the order are stated to be that:

i) the application was made without notice;

ii) the applicants have not had sight of the order nor the evidence before the court which led to the order being made; and

iii) the authorities make clear that service on a defendant resident in a Hague Convention country should be effected in accordance with the Hague Convention.

The Taruta parties submitted that the Set Aside Application should in fact have been made under CPR 11 but were prepared to treat the Set Aside Application as having been made under CPR 11 provided that the applicants accepted that this was the only jurisdictional challenge that they could bring. Counsel for the applicants told the court that the applicants did not intend to bring any further jurisdictional challenge. It seems to me therefore that it is not necessary for me to rule on the issue. However, it seems clear from the Court of Appeal in Hoddinott v Persimmon [2008] 1 WLR 806 that this application does fall within CPR 11.

Relevant law

CPR 6.15 (1) provides:

“Where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place.”

The test in the circumstances of this case where the Hague Convention applies is largely common ground: Société Générale v Goldas Kuyumculuk Sanayi Ithalat Ihracat A.S. [2018] EWCA Civ 1093 at [33] where Longmore LJ said:

Since Lord Clarke was at pains in Abela to say (paras 33–34 and 45) nothing about the position where the Hague Convention applied and expressly referred to paras 65–68 of Cecil v Bayat [2011] 1 WLR 3086 on which the judge relied, without expressing any disapproval of them, I cannot accept Soc. Gen's submission. In para 65–66 Stanley Burnton LJ said:-

“65. In modern times, outside the context of the European Union, the most important source of the consent of states to service of foreign process within their territory is to be found in the Hague Convention (in relation to the state parties to it) and in bilateral conventions on this matter. Because service out of the jurisdiction without the consent of the state in which service is to be effected is an interference with the sovereignty of that state, service on a party to the Hague Convention by an alternative method under CPR r 6.15 should be regarded as exceptional, to be permitted in special circumstances only.

66. It follows, in my judgment, that while the fact that proceedings served by an alternative method will come to the attention of a defendant more speedily than proceedings served under the Hague Convention is a relevant consideration when deciding whether to make an order under CPR r 6.15, it is general not a sufficient reason for an order for service by an alternative method.”

The phrase “interference with the sovereignty” might now be re-phrased in the light of Lord Sumption's judgment in Abela but the essential reasoning of Stanley Burnton LJ (with whom Wilson LJ and Rix LJ agreed) remains binding on this court so that service by an alternative method is to be permitted “in special circumstances only.” [emphasis added]

It is essentially a matter of fact: Abela v Baadarani [2013] 1 WLR 2043 at [33].

The principles were summarised by Popplewell J at first instance in Société Générale 2017 EWHC 667 (Comm) at [49]:

49. I would endeavour to summarise the relevant principles as follows:

(1) As the wording of Rule 6.16 makes clear, the Court will only dispense with service in exceptional circumstances.

(2) In deciding whether to authorise service by an alternative method under CPR Rule 6.15, whether prospectively or retrospectively, the Court should simply ask itself whether there is “a good reason”: Abela at [35]. This is the same test as whether there is good reason...