Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy
| Jurisdiction | England & Wales |
| Judge | Lord Justice Toulson,Lord Justice Hooper |
| Judgment Date | 29 February 2012 |
| Neutral Citation | [2012] EWCA Civ 196 |
| Docket Number | Case No: A3/2011/2083 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 February 2012 |
[2012] EWCA Civ 196
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION, COMMERCIAL COURT
David Steel J
2010 Folio 445
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lord Justice Hooper
and
Lord Justice Toulson
Case No: A3/2011/2083
Mr Alexander Layton QC and Mr Michael Fealy (instructed by Simmons & Simmons LLP) for the Appellant
Mr Michael Beloff QC and Mr Robert Palmer (instructed by Hogan Lovells International LLP) for the Respondent
Hearing date: 8 February 2012
Introduction
The defendant, Naftogaz, appeals against a decision of David Steel J refusing to set aside a judgment for US$24,719,564 obtained by the claimant, MIC, in default of defence.
The action was brought to enforce a debt established by a judgment of the Supreme Commercial Court of Ukraine (SCCU) on appeal from the Commercial Court of the City of Kiev.
After the English judgment was obtained Naftogaz applied successfully to the SCCU to set aside its previous ruling and to remit the case to the Kiev Commercial Court for a new trial.
Naftogaz thereupon applied to the Commercial Court to set aside the English judgment. In a reserved judgment dated 14 July 2011 [2011] EWHC 1820 (Comm) David Steel J held that there had been a flagrant breach of the principle of legal certainty inherent in article 6 of the European Convention and he refused to set aside the English judgment. He gave permission to appeal with the observation that the case involved an important arguable point on the issue of public policy.
Power to set aside a default judgment
The relevant provisions of the Civil Procedure Rules about default judgments are in Parts 12 and 13. Part 12 sets out when and how a default judgment may be obtained.
Part 13 provides mandatory and discretionary grounds for setting aside a default judgment. CPR 13.2 sets out grounds on which the court must set aside a default judgment, none of which apply in this case. CPR 13.3 is headed "Cases where the court may set aside or vary judgment entered under Part 12" (which includes a judgment entered in default of defence). It provides:
"1. In any other case, the court may set aside or vary a judgment entered under Part 12 if –
(a) the defendant has a real prospect of successfully defending the claim; or
(b) it appears to the court that there is some other good reason why –
(i) the judgment should be set aside or varied; or
(ii) the defendant should be allowed to defend the claim.
2. In considering whether to set aside or vary a judgment entered under Part 12, the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly."
Facts
Naftogaz is an energy company wholly owned by the state of Ukraine. It is the legal successor to a company called Ukrgazprom.
Fourteen years ago, in December 1997, Ukrgazprom entered into a contract with the Russian oil and gas company Gazprom by which Gazprom was to supply Russian national gas to Ukrgazprom. As part of the contractual arrangements Ukrgazprom agreed to pay certain debts of a Gazprom subsidiary, Surgutgazprom, to a Russian company called Severstudstroy. There were a number of supplemental and side agreements. Annex 12, dated November 20 1998, between Gazprom and Ukrgazprom, had the effect of amending the amount to be paid by Ukrgazprom to Severstudstroy. There was also a side agreement between Ukrgazprom and Severstudstroy dated 21 December 1998.
By a contract of assignment dated 28 December 1998 Severstudstroy assigned its contractual rights against Ukrgazprom to MIC. MIC is a company incorporated under the laws of Delaware, USA.
MIC received no payment from Naftogaz. In January 2002 it brought a claim against Naftogaz in the Kiev Commercial Court. Over the next four and a half years there were various judgments and appeals. Eventually on 21 April 2006 the Kiev Commercial Court gave judgment in favour of MIC for what was described as a debt of $9,733,334, a penalty of $19,551,581 and costs. On 29 June 2006 the SCCU varied the Commercial Court's order by reducing the penalty element of the judgment to $14,981,180. On 7 September 2006 the Supreme Court of Ukraine refused to permit a Cassation appeal to review the SCCU's judgment dated 29 June 2006. It further ruled that its judgment was final and could not be appealed.
MIC was unable to enforce its judgment in the Ukraine because a law, no 2711, was passed in 2005 suspending execution of judgments against energy companies. The suspension has been extended and remains in force.
The UK proceedings were begun on 13 April 2010. The particulars of claim are simple. They recited the various orders of the Ukrainian courts to which I have referred and continued:
"6. The defendant has accordingly been finally and conclusively adjudged by the Commercial Court of the City of Kiev and/or the Supreme Commercial Court of Ukraine to be liable to pay the claimant the total sum of US$ 24,719,564.
7. The defendant is accordingly indebted to the claimant in the said amount which the claimant claims in this action."
At that date those statements were uncontrovertible. MIC also applied for and obtained a freezing order in respect of Naftogaz's shares in a UK oil company.
On 6 May 2010 Hamblen J continued the freezing order after a hearing at which both parties were represented.
Naftogaz declined to permit its solicitors to accept service of the proceedings, and service was finally effected under the Hague Convention in September 2010.
Naftogaz applied to set aside service of the proceedings on the ground that the claim would circumvent Law 2711, but its application was dismissed on 28 January 2011 by Judge Mackie QC. Naftogaz then acknowledged service and stated that it intended to defend the proceedings, but no defence was served and judgment in default was obtained on 28 February 2011.
On 11 February 2011 Naftogaz applied to the SCCU to review the decisions of the Kiev Commercial Court and the SCCU dated 21 April 2006 and 29 June 2006 on the basis of "newly discovered circumstances", namely that according to documentary evidence from the Delaware Corporation Register annexed to the application the claimant had been granted the status of good standing under the law of Delaware by upgrading its status from lack of standing on 30 January 2002 and accordingly had lacked legal capacity to enter into the assignment agreement dated 28 December 1998. Naftogaz applied at the same time for suspension of enforcement of the judgments of the Kiev Commercial Court and the SCCU until completion of the review. In its application it informed the SCCU that MIC had applied to the Commercial Court in the UK for recognition and enforcement of the judgments.
On 22 February 2011 Naftogaz filed a supplemental petition with the SCCU for a review of the decisions of the Kiev Commercial Court and the SCCU on the additional grounds, said to be newly discovered, that annex 12 had not been signed on behalf of Ukrgazprom by the person identified on the document as its signatory, namely its chairman Mr Klyuk.
On 23 February 2011 the SCCU decided to accept the application for a review of its judgment and fixed a hearing date for considering the application on 23 March 2011. It also suspended enforcement of the judgment pending consideration of the application.
On 23 March 2011 MIC made written submissions to the SCCU in which it set out the history of its incorporation with supporting documentation from the Delaware Corporation Registry. It explained that it had good legal status at the date of the assignment and that it had been duly authorised to carry on business under its charter until 1 March 2001. It then became inoperative but the charter was revived on 30 January 2002.
On 7 April 2011, the SCCU made an order, based on the statement of Naftogaz that it had recently learned that MIC lacked capacity to enter into the assignment agreement and on the excerpt from the Delaware Corporation Register produced by Naftogaz, that the judgments of the Kiev Commercial Court and the SCCU dated 21 April 2006 and 29 June 2006 should be repealed and the case remitted for a new trial at first instance.
On 14 April 2011 Naftogaz issued its application in the English proceedings to set aside the judgment in favour of MIC on the basis of the SCCU's order of 7 April 2011 setting aside the previous Ukrainian judgments. The application was heard by David Steel J on 10 and 24 June and dismissed on 14 July 2011.
Evidence of events since David Steel J's judgment has been put before the court by Naftogaz on this appeal without objection by MIC.
On 3 November 2011 the Kiev Commercial Court gave a fresh judgment, this time in favour of Naftogaz.
As to the ground on which the case had been reopened, i.e. the capacity of MIC to enter into the assignment agreement, the court accepted that the Delaware documents showed that at the relevant time MIC had full civil legal capacity and was not restricted in the execution of any transactions.
However, the court found that the gas supply contract between Gazprom and Ukrgazprom was governed by Russian law and that annex 12 was void under Russian law because it was not signed by the person recorded as its signatory on behalf of Ukrgazprom. The debt supposedly assigned to MIC was therefore not a valid debt.
In its written submissions to the court on that issue MIC...
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