Erste Group Bank A.G. London Branch v JSC "vmz Red October" and Others
| Jurisdiction | England & Wales |
| Judge | The Hon Mr Justice Flaux,The Honourable Mr Justice Flaux |
| Judgment Date | 03 October 2013 |
| Neutral Citation | [2013] EWHC 2926 (Comm) |
| Docket Number | Case No: 2012 Folio 1136 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 October 2013 |
[2013] EWHC 2926 (Comm)
The Honourable Mr Justice Flaux
Case No: 2012 Folio 1136
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building
Fetter Lane, London, EC4A 1NL
Simon Salzedo QC and David Scannell (instructed by Gide Loyrette Nouel LLP) for the Claimant
Richard Morgan QC and James Sheehan (instructed by Macfarlanes LLP) for the Third Defendant
David Mumford (instructed by Enyo Law LLP) for the Fifth Defendant
Hearing dates: 17 20, 24 June, 3 July 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The Third and Fifth Defendants make applications both dated 31 January 2013 to set aside service of these proceedings upon them outside the jurisdiction in Russia pursuant to the Order of Cooke J dated 24 October 2012.
The Claimant (referred to hereafter as "Erste") is the London branch of an Austrian bank. It was one of a syndicate of lenders ("the Lenders") who participated to the extent of 25% each in a US$80 million loan to the First Defendant (referred to hereafter as "the borrower") pursuant to a Facility Agreement ("the Loan Agreement") dated 26 November 2007. At the time, the borrower owned and operated one of Russia's largest steel works, the Red October facility in Volgograd, employing thousands of people and supplying the Russian defence industry. The original lender was VTB Capital plc, which acted as the Facility Agent under the Loan Agreement. The Loan Agreement is governed by English law. It contains a London arbitration clause but with a mechanism under clause 37.4 whereby, at the Lenders' option, a notice can be served on the borrower requiring the relevant dispute to be determined in court, in which case the English courts had exclusive jurisdiction to settle the dispute.
The Second Defendant (referred to hereafter as "the guarantor") is the immediate parent of the borrower and itself a wholly owned subsidiary of the Fourth Defendant and (on Erste's case, in relation to which there is a serious issue to be tried) an indirect subsidiary of the Third Defendant. The guarantor guaranteed the performance of the borrower under the Loan Agreement pursuant to a Guarantee also dated 26 November 2007. The Guarantee is also governed by English law. It also contains a London arbitration clause but with the same mechanism under clause 13.5 whereby the Lenders can require a dispute to be subject to the exclusive jurisdiction of the English courts.
The Third Defendant (hereafter referred to for convenience as "RT") is a State Corporation incorporated by statute on 23 November 2007 for the purposes of managing Russia's military and manufacturing assets and developing its military industry. Its supervisory council, its ultimate management body, comprises nine members, four who are representatives of the President of Russia, four who are representatives of the Government of Russia and one who is described as the "general director". One of the representatives of the President, who was the Chief Executive Officer at all material times was Mr Sergei Chemezov. It is not disputed that Mr Chemezov is one of President Putin's oldest and most trusted friends and colleagues, they having shared a house together in Dresden in the period 1983 to 1988 when they were both KGB agents in East Germany.
On 31 July 2009, a repayment under the Loan Agreement of US$1,666,666.67 fell due which was not honoured by either the borrower or the guarantor. Prior to that repayments had been met on time. Notice of default was served on the borrower requiring repayment of the loan plus interest. Erste's case in these proceedings is that the default by the borrower and the guarantor was engineered deliberately by an unlawful means conspiracy between RT and the other Defendants (all of whom Erste contends are controlled by RT) designed to strip the borrower and the guarantor of their assets and render them insolvent. In these proceedings Erste claims against the borrower and the guarantor in debt and under the contracts. It then claims against all the Defendants damages for unlawful means conspiracy, alternatively lawful means conspiracy, damages for unlawful interference with economic interests and/or with contractual relations. Erste also seeks an Order under section 423 of the Insolvency Act 1986. This case is strenuously resisted by RT and RT Capital on these applications. The inability of the borrower and the guarantor to honour their obligations is said by them to have been due to the failure of the business in 2009 due to the global economic downturn. Erste disputes that explanation, pointing out that the steel manufacturing business, although now run by different companies set up for the purpose, has been profitable in the last two years.
In relation to the claims against the borrower and the guarantor, on 18 August 2011 Erste served notices under clause 37.4 and 13.5 of the Loan Agreement and Guarantee respectively to litigate the dispute with them before the English courts. The dispute was described in the notices as "The Dispute concerns the Borrower's [or Guarantor's] failure to repay the indebtedness under the Facility Agreement [as required by the Guarantee]." In his submissions before me, Mr Richard Morgan QC for RT contended that, although these notices were effective in respect of the claims against the borrower and the guarantor in debt and for breach of contract, they did not encompass the claims against them in conspiracy or the other wider claims, including under section 423. I should say at the outset that I disagree: all the claims against the borrower and guarantor "concern" their failure to repay the indebtedness so that the notices caught all the claims. However, in any event, this proved a non-point because during the course of the hearing Erste's solicitors served fresh notices which on any view were wide enough to encompass all the claims. It follows that (subject to the submission by Mr Morgan that Erste has by various actions in Russia submitted to the jurisdiction of the Russian insolvency courts any wider claim against the borrower and guarantor, to which I will return in detail below) all claims against the borrower and the guarantor are subject to the exclusive jurisdiction of the English courts.
So far as the claims under the Loan Agreement and the Guarantee are concerned, they were the subject of a summary judgment application by Erste which was heard by HHJ Mackie QC on 14 December 2012. Both Defendants had been served with the proceedings and with notice of that application but chose not to participate save for issues raised by the liquidation manager of the guarantor that those two Defendants were subject to insolvency proceedings in Russia and that a Russian court had declared the Guarantee invalid under Russian law. Those issues (which are echoed by some of the points taken now before me) were rejected by the learned judge who decided neither issue had a reasonable prospect of success as a defence. He granted summary judgment against both defendants for US$16,843,003.13 plus interest, then standing at about €4 million. There was no appeal from that Order but equally no payment has been made to Erste.
Principles applicable on applications to set aside service out of the jurisdiction
A useful summary of the applicable legal principles is to be found in the recent decision of the Court of Appeal in VTB Capital v Nutritek International [2012] EWCA Civ 808; [2012] 2 Lloyd's Rep 313 at [99]-[100] in the judgment of Lloyd LJ:
"99. There was no dispute between the parties on the general principles to be applied when deciding whether permission should be granted to serve proceedings on a defendant who is out of the jurisdiction, under the terms of paragraph 3.1 of Practice Direction 6B of the CPR. The three basic principles were recently restated by Lord Collins of Mapesbury in giving the advice of the Privy Council in AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7; [2012] 1 WLR 1804 at paragraphs 71, 81 and 88. They can be summarised as follows: first, the claimant must satisfy the court that, in relation to the foreign defendant to be served with the proceedings, there is a serious issue to be tried on the merits of the claim, i.e. a substantial question of fact or law or both. This means that there has to be a real, as opposed to a fanciful, prospect of success on the claim. Secondly, the claimant must satisfy the court that there is a good arguable case that the claim against the foreign defendant falls within one or more of the classes of case for which leave to serve out of the jurisdiction may be given. These are now set out in paragraph 3.1 of Practice Direction 6B. "Good arguable case" in this context means that the claimant has a much better argument than the foreign defendant. Further, where a question of law arises in connection with a dispute about service out of the jurisdiction and that question of law goes to the existence of the jurisdiction (e.g. whether a claim falls within one of the classes set out in paragraph 3.1 of Practice Direction 6B), then the court will normally decide the question of law, as opposed to seeing whether there is a good arguable case on that issue of law.
100. Thirdly, the claimant must satisfy the court that in all the...
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