Do not attempt to present an artificially constructed case to try to forum shop in the London courts. That is the stark message for overseas litigants, following the High Court’s decision to throw out a case brought by a state-owned Ukrainian bank against its Swiss-domiciled former owners earlier this month.
PrivatBank had originally obtained a Worldwide Freezing Order (or WFO) for up to US$2.6 billion against its former majority shareholders Igor Kolomoisky and Gennadiy Bogolyubov following allegations of extensive fraud being made against them.
Despite both Kolomoisky and Bogolyubov living in Switzerland, and the bank being wholly Ukraine based and under the de facto control of the Ukrainian State (and indirectly its President, Petro Poroshenko), it was argued that the proceedings prima facie fell within the UK’s jurisdiction.
This was because of claims made against three English-domiciled, co-defendant companies (the English Defendants) allegedly controlled by the two former owners. Under European law, expressly Article 6.1 of the Lugano Convention, a defendant can be joined to a case in a member state where any one of the other defendants in the same proceeding is domiciled.
But in a verdict that declined jurisdiction and struck out the WFO, Justice Fancourt decided that PrivatBank’s case was massively exaggerated and relied heavily on an “unjustified assumption” about the movement of funds. Further, and in unprecedentedly blunt terms, he criticised some of the claimant’s evidence as being “extremely difficult to make sense of.”
In declining jurisdiction, Justice Fancourt found that the English co-defendant companies were nothing more than corporate shells and to be regarded on the same terms as dozens of other insubstantial corporate entities in the alleged scheme and were not, as the Claimant had alleged, central to it.
In making these findings he agreed with the defendants’ case that the English Defendants had been sued as “anchor defendants” purely to enable jurisdiction over the First and Second Defendant personally, who are both resident in Switzerland. This constituted an abuse of Article 6.1 of the Lugano Convention.
The strength of these findings was further evidenced by PrivatBank being ordered in a separate judgment to pay the defendants’ full legal costs on an indemnity basis, totalling up to £14 million, with £7.5million of that payable to the defendants within 28 days.
In his judgment, the judge cited abuse of Article 6, material non-disclosure at the time of applying for the WFO and the degree of exaggeration of the claim as determinative factors in deciding to discharge the WFO.
So what does this mean for overseas litigants, given the UK has long been seen as an optimum forum to conduct litigation?
There is undoubtedly always a desire for litigants to establish jurisdiction in major legal and financial centers like the UK where there are substantial procedural advantages in bringing fraud actions, as opposed to places like Ukraine or Switzerland.
Features such as an extensive disclosure regime, the possibility of interim relief via WFOs on indirectly controlled assets, and trial cross-examination, all contribute to making the UK a sought-after jurisdiction.
But the UK court system must not be abused.
It’s appropriate to consider this judgment as a warning and a cri de coeur that the UK courts will not be used as a means to further malicious geopolitical agendas.
And furthermore, that the UK courts will see through artificially constructed cases which skew the available evidence to establish jurisdiction for improper strategic purposes.
Here, it seems there was evident malice in seeking jurisdiction, given the animosity between one of the defendants, Igor Kolomoisky, and President Poroshenko. Poroshenko considers the Forbes listed billionaire a political threat and it’s surely more than just a coincidence that there are presidential elections coming up in March this year in which he is currently trailing all other opponents.
Indeed, in this case, Kolomoisky asserted in his evidence that the proceedings in England and the WFO were part of a broader “campaign of persecution” against him by his political enemy Poroshenko with the intent of damaging him and/or depriving him of his assets and business interests.
This case therefore has its own bespoke Ukrainian political dimensions.
But this warning is welcome and long overdue in the UK more generally. It was recently reported in the Daily Telegraph that intelligence agencies had drawn up a list of six wealthy, high-profile Russian oligarchs to be circulated across Whitehall departments and shared with the UK’s allies, in an attempt to disrupt their ability to travel and maintain their business empires.
This comes as part of a broader policy to disrupt Russian influence across the UK and Europe and follows the announcement of plans for the UK to remove visas, impose travel restrictions and inspect property assets of high-net-worth Russian individuals.
It requires no great leap of imagination to see how these kinds of initiatives could trigger litigation being brought in the UK against similar individuals from other countries by overseas claimants for their own financial or political motives.
Now more than ever, it is important for the UK’s judiciary to scrutinise claims even more carefully and ensure that the UK court system is not being utilised for improper motives.
PrivatBank is due to file an appeal with respect to Article 6 of the Lugano Convention (jurisdiction is one area where Justice Fancourt granted it permission to appeal to the Court of Appeal). It has also indicated that it may seek to appeal on other grounds. Therefore, it is very likely that the Court of Appeal, and perhaps even the Supreme Court, will have an opportunity to comment on some of the issues in this case of wider importance.
In terms of practical guidance for litigants, this decision underscores the fact that English judges will not tolerate tactical breaches of the duty of disclosure when applying for a WFO and that there will be punitive costs orders made against claimants who choose to ignore this. It also highlights the fact that all litigants need to ensure that robust “case strategy” in terms of pleadings and evidence does not descend into obfuscation of the facts and misleading of the court.
Malik Dahlan is a Chaired Professor of International Law and Public Policy at Queen Mary, University of London, the Principal of the Institution Quraysh for Law & Policy and a Senior Research Fellow at the Rand Corporation.