Merchant International Company Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke |
| Judgment Date | 07 July 2016 |
| Neutral Citation | [2016] EWCA Civ 710 |
| Docket Number | Case No: A3/2015/2041(B) |
| Court | Court of Appeal (Civil Division) |
| Date | 07 July 2016 |
[2016] EWCA Civ 710
Lord Justice Christopher Clarke
Case No: A3/2015/2041(B)
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Stephen Hofmeyr QC
2010 Folio 445
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Lazarus (instructed by Hogan Lovells International LLP) for the Applicant
David Head QC (instructed by Gowling WLG) for the Respondent
Hearing date: 28 June 2016
Merchant International Company Limited ("MIC"), the respondent, applies for an order that a condition be imposed on the permission to appeal granted by Lewison LJ on 22 September 2015 to Natsionalna Aktsionerna Kompaniia Naftogaz ("Naftogaz"). The condition sought is that Naftogaz should provide security for (a) the full amount of the unpaid judgment debt plus interest down to the date fixed for the hearing of the appeal; (b) historic unpaid costs; and (c) estimated costs of the appeal, amounting in total to $ 28,500,000. Alternatively MIC seeks an order that Naftogaz provide security for MIC's costs of the appeal estimated at £ 210,000. It is not in dispute that the conditions under which an order for security for costs may be made are met.
History
This case has a long history. On 28 February 2011 judgment ("the 2011 judgment") was entered against Naftogaz in default of defence for $ 24,719,564.70. The claim was to enforce the judgment of a Ukrainian court against Naftogaz as the legal successor of Ukrgazprom, dated 29 June 2006 ("the 2006 judgment") based on a commercial debt that fell due on 1 August 1999. MIC was claiming as an assignee of a Russian company called Severstudstroy. It was not suggested that Naftogaz does not have enough money to pay the debt.
On 13 April 2010 MIC issued the present proceedings in the Commercial Court to enforce the 2006 judgment. On 13 April 2010 Burton J, ex parte, and in May 2010 Hamblen J (as he then was), on notice, made a freezing order in respect of Naftogaz's assets within the jurisdiction up to the amount of $ 25 million and in particular shares with a then value of £ 29,000,000 in an English company called JKX Oil & Gas plc., which was listed on the London Stock Exchange. So far as MIC was aware these were the only assets which Naftogaz had in this jurisdiction. The order was not opposed on the return date, at which time Naftogaz was represented, and it is still in force.
MIC has no realistic prospect of enforcing the 2006 judgment in Ukraine. MIC was prevented from doing so because Ukrainian Law 2711, enacted in 2005, suspended the enforcement of judgments against energy companies. The 2006 judgment was set aside by the Supreme Commercial Court of Ukraine ("SCCU") on 7 April 2011 on the grounds of " newly discovered circumstances" namely that MIC allegedly lacked the capacity to enter into the assignment. This setting aside took place in circumstances described by the English Court of Appeal as involving " a fundamental denial of legal certainty and fair process" and as being " flagrantly in breach of Article 6 of the Convention".
Following a retrial the Kiev Commercial Court on 11 November 2011 dismissed MIC's claim, not on the ground of want of capacity, but on the ground that the contract under which the assigned debt arose had not been signed by the person recorded as its signatory on behalf of Ukrgazprom so that the debt supposedly assigned was not a valid debt. On 27 April 2012 the Kiev Commercial Court of Appeal dismissed an appeal.
On 14 July 2011 David Steel J refused Naftogaz' application to set aside the 2011 judgment on the basis of the SCCU's order of 7 April 2011 and on 29 February 2012 the Court of Appeal dismissed Naftogaz's appeal from his order. On 26 July 2012 the Supreme Court refused Naftogaz permission to appeal.
In the end the JKX shares were sold pursuant to an order for sale made on 23 March 2013 for £ 5,128,393.07. This followed an earlier final charging order of 2 October 2012 (an interim one having been obtained on 28 February 2011).
Naftogaz has in the United Kingdom what MIC claims to be an asset in the form of $ 24,700,000 credited to an account at the London branch of Bank of New York Mellon ("BNYM"). The amount credited to the relevant account is $ 25,000,000 but BNYM is entitled to $ 300,000 in respect of costs. The sum from which the $ 25,000,000 was derived was paid to BNYM on or about 30 September 2013. Naftogaz disputes MIC's claim that the amount in the account is an asset it owns.
BNYM came to continue to hold the money in the relevant account as a result of MIC's eventually unsuccessful attempts to enforce its judgment by Third Party Debt Orders (TPDOs). The $ 25 million was part of a larger sum (about $ 75.7 million) that Naftogaz transferred to BNYM in September 2013 to pay semi-annual interest due under certain Loan Notes due on 30 September 2014 issued by Naftogaz and in relation to which BNYM was the Principal Paying Agent.
On 26 February 2014 Blair J declined to make final TPDOs and discharged three interim TPDOs obtained by MIC on the grounds that at the dates when they were made BNYM was under no obligation to repay Naftogaz. On 10 December 2014 MIC's appeal from that judgment was dismissed. The first application for a TPDO made by MIC had caused BNYM to refuse to make the coupon payments due under the Loan Notes. Failure to make such a payment by the due date would risk the whole amount of the Notes becoming due. Naftogaz had, therefore, to make payment to BNYM of a further $ 75 million in order to avoid default under the Notes. BNYM continued to hold the original $ 75 million sum in England because of the May 2010 freezing order.
After the Loan Notes had matured and had been repaid the Bank repaid to Naftogaz $ 50,000,000 of the $ 75,000,000 first coupon payment, that amount not being caught by the freezing order. The Bank considered that $ 25,000,000 was caught by the order, abut Naftogaz does not accept that this was in fact the case.
On 19 December 2014 MIC applied to the Commercial Court for an order appointing a receiver on two bases:
(i) that following and as a result of the maturity and payment of the Notes, Naftogaz had a legally enforceable claim against BNYM which was susceptible to equitable execution by way of a receivership in the ordinary way;
(ii) alternatively, even if Naftogaz had no enforceable claim against BNYM, it would be an appropriate incremental development of the court's jurisdiction to appoint a receiver to make such an appointment in the present case since it was likely that BNYM would pay the receiver, standing in the shoes of Naftogaz, even if it was not under a legal obligation to do so.
On 4 June 2015 Stephen Hofmeyr QC, sitting as a Deputy High Court Judge decided that as a result of the maturity of the Loan Notes BNYM was obliged to account to Naftogaz in respect of the money in the account with it and that a receiver should be appointed on the first basis. It was not, therefore, necessary for him to rule on the second basis but he expressed the obiter view that it would have been appropriate to make an incremental development in the law [30].
Accordingly by his order of 4 June 2015 he appointed a receiver of all of Naftogaz's rights in the $ 25,000,000 in the account at BNYM. That is the judgment now under appeal. Permission to appeal was given by Lewison LJ, who also granted a stay of the receivership order.
The rules
CPR 52.9 provides that:
" (1) The appeal court may
….
(c) impose or vary conditions upon which an appeal may be brought.
(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so."
If the respondent has a money judgment in his favour the condition most often sought is that the judgment sum plus interest and costs (or some of those items) be paid into court or otherwise secured.
The authorities
There is a fair body of authority on the circumstances in which the Court will require payment into court or securing of the judgment sum as a condition of appeal.
Societé Eram
In Societé Eram Shipping Co Ltd v Compagnie International de Navigation & Others [2001] EWCA Civ 568 an appeal was pending against the discharge of a garnishee order made against a bank in favour of a judgment creditor. Tomlinson J, at first instance, gave permission to appeal. Rix LJ was concerned, inter alia, with an application by the bank for a stay of the appeal until the costs order made by the judge in its favour (the costs being summarily assessed by him) had been paid. The application was made under CPR 3.12 (f) or the inherent jurisdiction. Rix LJ addressed a submission made to him that there was no jurisdiction to make an order by reason of CPR 52.9. He was inclined to think that the latter rule only applied where the application for permission to appeal was being dealt with by the appeal court but accepted that the fact that a condition ought only be imposed by an appeal court when there was compelling reason to do so suggested "a very cautious approach to the question of a stay for non-payment". He was not satisfied that there was a compelling reason for making such an order. He thought that the likelihood was that the appellant could not pay and that inability to pay was not a proper ground on which to deprive an appellant who had permission to appeal from pursuing his appeal. He did however make an order for security for costs.
The matter was considered at greater length in Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2011] EWCA Civ 2065. The appellant sought a stay of the orders made by the judge for the...
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