PJSC Tatneft v Gennadiy Bogolyubov
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 05 June 2019 |
| Neutral Citation | [2019] EWHC 1400 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000172 |
| Date | 05 June 2019 |
Neutral Citation Number: [2019] EWHC 1400 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF
ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Rolls Building, Fetter Lane,
London, EC4A 1NL
Mr Justice Butcher
Case No: CL-2016-000172
Paul McGrath QC, David Davies and James Sheehan (instructed by Akin Gump LLP) for the Claimant
Matthew Parker and Philip Hinks (instructed by Enyo Law LLP) for the First Defendant
Mark Howard QC, Ruth Den Besten and Tom Ford (instructed by Fieldfisher LLP) for the Second Defendant
Kenneth MacLean QC and Owain Draper (instructed by Mishcon de Reya LLP) for the Third Defendant
Tom Weisselberg QC and Harry Adamson (instructed by Byrne & Partners LLP) for the Fourth Defendant
Hearing dates: 15–16 May 2019
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
This is an application by the Defendants for security for costs, made by application notices dated 10 and 11 September 2018.
Though it is an application for security for costs, which should ordinarily, in accordance with paragraph F10.3 of the Commercial Court Guide, have a time estimate of one hour, this hearing has taken one (very full) day of pre-reading, two days of oral hearings, with no time in those two days to permit the issues as to the quantum of any security to be argued, or the giving of judgment. Some 26 bundles of materials were put before me, with two bundles of authorities.
In the action the Claimant (“Tatneft”), which is an oil company incorporated in Tatarstan, one of the constituent members of the Russian Federation, claims against the four individual Defendants in respect of their alleged involvement in what Tatneft describes as an “Oil Payment Siphoning Scheme”.
The nature of the parties, and the issues in the action are described in some detail in the judgment of Picken J in PJSC Tatneft v Bogolyubov [2016] EWHC 2816 (Comm), in particular paragraphs [3–12], and it is not necessary to say very much about them. Tatneft's allegations are, in summary, that during 2007 it sold oil to a company called PJSC Transnational Financial and Industrial Company ‘Ukrtatnafta’ (“UTN”), which was the owner and operator of the Kremenchug oil refinery in Ukraine, through a contractual chain of companies known as Kompaniya Suvar-Kazan LLC (“S-K”), Private Multi-Sector Production Commercial Enterprise AVTO (“Avto”), Taiz LLC (“Taiz”) and Tekhno-Progress Scientific and Production LLC (“Tekhnoprogress”). On 19 October 2007 Tatneft ceased to make delivery of the oil, and UTN ceased to make payment. In 2009, Tatneft alleges, the Defendants, who are all Ukrainian businessmen, procured that the value of outstanding oil payments was paid by UTN to Taiz and Tekhnoprogress and then siphoned them out of those companies. Tatneft claims that the siphoning off of these funds was a scheme effected by the Defendants. It contends that the Defendants are liable for damages of US$334 million under Article 1064 of the Russian Civil Code. Tatneft brings these proceedings as assignee of what it contends was its commission agent, S-K. Tatneft's claims are disputed by the Defendants on various grounds. I do not need to say more about them. There is no issue on this hearing that the claim and the defences are arguable, and the strength of neither is said to be relevant to my decision as to whether to order security for costs.
The Legal Basis for an Order for Security for Costs
CPR 25.13 provides, in part, as follows:
“25.13 (1) The court may make an order for security for costs under rule 25.12 if –
(a) It is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies
…
(2) The conditions are –
(a) the claimant is –
(i) resident out of the jurisdiction; but
(ii) not resident in a Brussels Contracting State, a State bound by the Lugano Convention, a State bound by the 2005 Hague Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982.”
There is no dispute that, given that Tatneft is a Tatarstan company, the condition set out in rule 25.13(2)(a) is met.
The Court therefore has jurisdiction to order security for costs. However, as explained by the Court of Appeal in Nasser v United Bank of Kuwait [2002] 1 WLR 1868, though the Court has a discretion because rule 25.13(2)(a) is met, that discretion must be exercised in a manner which is not discriminatory for the purposes of Articles 6 and 14 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. As it was put in paragraphs [62–64] of that case, per Mance LJ:
“[62] The justification for the discretion under rules 25.13(2)(a) … in relation to individuals and companies ordinarily resident abroad is that in some – it may well be many – cases there are likely to be substantial obstacles to, or a substantial extra burden (eg of costs or delay) in, enforcing an English judgment, significantly greater than there would be as regards a party resident in England or in a Brussels or Lugano state….
[63] It also follows, I consider, that there can be no inflexible assumption that there will in every case be substantial obstacles to enforcement against a foreign resident claimant in his or her (or in the case of a company its) country of foreign residence or wherever his, her or its assets may be. If the discretion under rule 25.13(2)(a) …. is to be exercised, there must be a proper basis for considering that such obstacles may exist or that enforcement may be encumbered by some extra burden (such as costs or the burden of an irrecoverable contingency fee or simply delay).
[64] The courts may and should, however, take notice of obvious realities without formal evidence. There are some parts of the world where the natural assumption would be without more that there would not just be substantial obstacles but complete impossibility of enforcement; and there are many cases where the natural assumption would be that enforcement would be cumbersome and involve a substantial extra burden of costs or delay. But in other cases … it may be incumbent on an applicant to show some basis for concluding that enforcement would face any substantial obstacle or extra burden meriting the protection of an order for security for costs. Even then it seems to me that the court should consider tailoring the order for security to the particular circumstances. …”
Consideration was given to the evidential threshold which an applicant for security for costs needed to surmount in Bestfort Developments LLP v Ras Al Khaimah Investment Authority [2016] EWCA Civ 1099. It was there held by the Court of Appeal that it is not necessary for such an applicant to show that it was more likely than not that there would be substantial obstacles to enforcement, but was sufficient for it to demonstrate that there was a real risk that it would not be in a position to enforce an order for costs. Gloster LJ said as follows:
“[73] Contrary to Mr Millett's submissions, I do not accept that there is any need for the evidence to demonstrate ‘very cogent evidence of substantial difficulty in enforcing a judgment’ either in the non-Convention state where a claimant is resident, or where his assets are located.
…
[77] In my judgment, it is sufficient for an applicant for security for costs simply to adduce evidence to show that ‘on objectively justified grounds relating to obstacles to or the burden of enforcement’, there is a real risk that it will not be in a position to enforce an order for costs against the claimant/appellant and that, in all the circumstances, it is just to make an order for security. Obviously there must be ‘a proper basis for considering that such obstacles may exist or that enforcement may be encumbered by some extra burden’ but whether the evidence is sufficient in any particular case to satisfy the judge that there is a real risk of serious obstacles to enforcement, will depend on the circumstances of the case. In other words, I consider that the judge was wrong to uphold the Master's approach that the appropriate test was one of ‘likelihood’, which involved demonstrating that it was ‘more likely than not’ (ie an over 50% likelihood), or ‘likely on the balance of probabilities’, that there would be substantial obstacles to enforcement, rather than some lower standard based on risk or possibility. A test of real risk of enforceability provides rational and objective justification for discrimination against non-Convention state residents. …
…
[79] Necessarily, at an interlocutory stage, in the absence of cross-examination and full enquiry, it may well be that the court cannot be satisfied at that time that an applicant for security has demonstrated on the balance of probabilities, that there will be substantial obstacles to enforcement, or even, in some cases, that there is a real risk of such obstacles. The judge at that stage may well not be in a position to resolve disputed issues arising on the evidence. For that reason, I am against the articulation of any hard-line, inflexible test in relation to an evidential standard based on ‘likelihood’. …
…
[86] … What actually suffices to justify the making of an order will depend on the evidence adduced; ‘mere possibility’ of obstacles to enforcement in my view will usually be insufficient to justify an order for security; but (depending on the evidence) ‘real risk’ will usually, but not invariably, suffice.”
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