The High Court has ordered a stay of English proceedings brought by a bank against several shareholders of a company for deceit and unlawful means conspiracy on the grounds of forum non conveniens: Abu Dhabi Commercial Bank Pjsc v Shetty & Ors  EWHC 529 (Comm).
This decision will be of interest to financial institutions seeking to bring a fraud claim in the English courts in relation to financial services provided to a UK customer and its foreign subsidiaries. It highlights that, where a non-contractual claim is brought against those standing behind the customer, the governing law of that claim may not be English law, even if the contractual documentation with the customer contains a choice of English law. If that is the case, and particularly if the claim raises disputed issues of foreign law, the courts may be more inclined to conclude that the relevant foreign jurisdiction is the appropriate forum for the trial of a claim – though this factor may of course be outweighed if there are other substantial connections with England.
In the present case, the court found that the governing law of the dispute was United Arab Emirates (UAE) law rather than English law. This was due to the fact that the loss which the bank sought to recover from the shareholders was suffered in the UAE where the credit facilities were drawn down by UAE domiciled entities. In other words, the direct loss occurred where the facility was drawn down, not where the contract to make the facility available was entered into – and only direct damage is sufficient for these purposes. The damage could not, therefore, be said to have occurred in England.
In contrast, for the purposes of the tort gateway for service of proceedings out of the jurisdiction, the Supreme Court held in FS Cairo (Nile Plaza) LLC v Brownlie  UKSC 45 (considered here) that it is sufficient if the claimant has suffered any actionable damage within the jurisdiction, whether direct or indirect. However, the court will decline to exercise jurisdiction if another forum is clearly and distinctly the more appropriate forum for the claim (unless justice requires that the claim be tried in England). On the facts of this case, the court was satisfied that Abu Dhabi was the more appropriate forum, including (among other factors) because of the court’s conclusion that UAE law applied.
We consider the decision in more detail below.
Prior to 2019, the claimant bank (the Bank) extended credit facilities to a UK company (the Company), its main UAE subsidiary, and its other subsidiaries (together, the Group). In April 2020, the Company was placed into administration, and the existence and scale of a fraud within the Group become apparent. This fraud allegedly led to undisclosed debt within the Group totalling almost USD 5 billion.
The Bank brought a claim in the English court against the Company’s controlling shareholders for deceit and unlawful means conspiracy in relation to certain credit facilities made available by the Bank to the Company and its subsidiaries. The Bank’s case was that the shareholders had conceived or carried into effect a scheme by which false financial statements were created for the Company, which gave a false impression of the Company’s financial strength by concealing the losses it had accumulated within its subsidiaries as a result of massive dishonest misappropriation. It was alleged that these statements were deployed by or with the encouragement and consent of the shareholders for the purposes of inducing the Bank to extend or renew credit facilities to entities within the Group.
The Bank served proceedings on the first defendant within the jurisdiction, relying on section 1140 of the Companies Act 2006 which allows service on a director of an overseas company at an address in England and Wales which the director has registered under section 1046 of that Act. It then obtained permission to serve the remaining defendants out of the jurisdiction on the basis that they were “necessary or proper parties” to the claim against the first defendant (relying on the jurisdictional gateway at paragraph 3.1(3) of CPR PD6B) or alternatively the jurisdictional gateway for tort claims at paragraph 3.1(9) of CPR PD6B.
The shareholders applied for an order setting aside permission to serve the proceedings on them out of the jurisdiction. The shareholders challenged the English court’s jurisdiction on the basis that there was no real issue to be tried and no PD6B gateway through which the Bank could pass. The shareholders also argued that England was not the most suitable forum for the resolution of this dispute, which in their view should be resolved by the UAE courts, including on the basis that UAE law was the governing law of the dispute.
The court found in favour of the shareholders and ordered a stay of the proceedings.
The court was satisfied that there was a real issue to be tried between the Bank and the shareholders, the latter had either been properly served in accordance with section 1140 of the Companies Act 2006 or passed through the necessary or proper party gateway, and that the claims also passed through the tort gateway. However, in its view, there was another forum which clearly and distinctly was more appropriate for the trial of the claim than England, namely Abu Dhabi, and there were no circumstances by reason of justice requiring that the claim be tried in England rather than Abu Dhabi.
The key issues which may be of broader interest to financial institutions are examined below.
Test for grant of permission to serve proceedings out of the jurisdiction
The court referred to the well-established principles in Altimo Holdings and Investments Limited v Kyrgyz Mobile Telephones Limited  UK PC 7 for the grant of permission to serve proceedings out of the jurisdiction. The court highlighted that a claimant must establish:
- As against each foreign defendant concerned, that there is a serious issue to be tried on the merits, applying the summary judgment test – that is, whether there is a real as opposed to a fanciful prospect of success;
- A good arguable case that the claim against each foreign defendant passes through at least one of the gateways identified in paragraph 3.1 of PD6B; and
- In all the circumstances the forum conveniens for the determination of the litigation is clearly and distinctly England, and that therefore the court ought to exercise its discretion so as to permit service out of the jurisdiction. At this stage of the enquiry, the task of the court is to identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice.
Serious issue to be tried
The court found that the Bank had demonstrated against each of the shareholders that there was a serious (that is more than fanciful) issue to be tried between them.
The court said, amongst other things, that it considered it realistically arguable that a court could readily conclude that the shareholders, in procuring the financial statements representations, were deliberately causing harm to the Bank given that it was alleged that the shareholders all knew and intended that the Bank’s entry into certain credit facilities would be predicated on its reliance on the Company’s financial statements and that they knew the representations were false.
Necessary or proper party gateway / s.1140 Companies Act 2006
The court found that the Bank had satisfied the requirements of the necessary or proper party gateway on which it had relied.
The court said that the first defendant shareholder had been properly served in England under section 1140 and so was capable of being an anchor defendant for the purposes of the necessary or proper party gateway. It rejected the defendants’ argument that this method of service was not available unless a defendant was resident in the jurisdiction at the time of service. The court found that such a restriction would be potentially arbitrary and, even if the test was one of domicile rather than residency, it would significantly reduce the practical utility of providing for this method of service. The court’s conclusion was also consistent with previous decisions, eg in Key Homes Bradford Limited v Patel  1 BCLC 402 (considered here).
The tort gateway at paragraph 3.1(9) of PD6B applies if either (a) damage was sustained within the jurisdiction or (b) damage resulted from an act committed within the jurisdiction.
In relation to paragraph 3.1(9)(b), as per Metall und Rohstoff A.G. v Donaldson  1 QB 391, the claimant must show that the damage has resulted from “substantial and efficacious acts” committed within the jurisdiction, whether or not substantial and efficacious acts have also been committed elsewhere. With regard to certain of the pleaded implied representations, the court said that “with very great hesitation” it was prepared to accept that the Bank had shown at least a plausible evidential basis for saying that the financial statements or a summary of them were published by the London Stock Exchange on its website and were accessed from that site by the Bank. This was sufficient to satisfy the requirements of the gateway.
In relation to paragraph 3.1(9)(a), as per Brownlie, the question was whether the Bank had shown a plausible evidential basis that direct or indirect actionable harm had been caused to it within the jurisdiction by the wrongful acts alleged. The court was satisfied that this was the case in relation to two of the core facilities, as the syndicated loan agreements had become effective only when the solicitors to the facility agent had received all the signed and executed counterparts at their London office and then dated them bringing the agreements into effect. The fact that the Bank had never transferred funds to or from England, or become liable to do so, did not prevent there having been indirect actionable harm in England. That was consistent with the approach endorsed by the Supreme Court in Brownlie that the issue of forum non conveniens should be used as the mechanism for excluding claims that otherwise pass through the gateway adopting this wide test.
The court found that the governing law of the dispute was UAE law.
The court noted that the dispute was non-contractual and therefore the governing law of the dispute was to be determined by applying UK Rome II – the EU Regulation on the law applicable to non-contractual obligations, as it continues to apply in UK domestic law following the end of the Brexit transition period.
Article 4 of UK Rome II provides that: (i) the law applicable to a non-contractual obligation arising out of a tort shall be the law of the country in which the damage occurs; (ii) however, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply; and (iii) where it is clear from all the circumstances of the case that the tort is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply.
The starting point was therefore the law of the country in which the (direct) damage occurred, not that of the country in which the event giving rise to the damage occurred. Here the damage occurred when a UAE-based company drew down against or otherwise benefitted from the credit facilities offered by a UAE-based bank. In other words, for these purposes the loss occurred where the facility was drawn down, not where the contract to make the facility available was entered into. The direct damage could not, therefore, be said to have occurred in England.
The court also underlined that, even if the damage had occurred in England, all the shareholders and the bank were habitually resident/had their central place of administration in the UAE at the time the damage occurred. There was no basis for saying the tort was manifestly more closely connected with England. The law of the UAE should therefore apply.
Finally, the court noted that contract was immaterial on the facts of this case because the contracts on which the Bank relied were between it and the Company and not any of the entities or individuals involved in the conspiracy and so did not evidence a pre-existing relationship between the parties to the dispute.
The court said it was satisfied that: (a) there was another forum which was clearly and distinctly more appropriate than the English forum, namely Abu Dhabi; and (b) there were no circumstances by reason of which justice required that this claim be tried here rather than Abu Dhabi.
The court noted that, as per Cairo (Nile Plaza) LLC v Brownlie  UKSC 45, the principle of forum non conveniens provides a robust and effective mechanism for ensuring that claims which do not have their closest connection with England will not be heard in the English court.
The court also highlighted that, as per Spiliada Maritime Corp v Cansulex Ltd  UKHL 10, in relation to applications for permission to serve proceedings out of the jurisdiction, the onus usually rests on the claimant to show that England and Wales is clearly the most appropriate jurisdiction in which to resolve the claims. However, where the defendant has been served in the jurisdiction, the onus rests on the defendant to show that there is another available forum having competent jurisdiction which is clearly or distinctly the more appropriate forum for the trial.
The court also commented that, as per Lungowe v Vedanta Resources plc  UKSC 20, the risk of irreconcilable judgments is not a trump card on a forum assessment. The fact that one of the defendants had accepted the English court’s jurisdiction would not justify the conclusion that England was the most suitable jurisdiction for this case to be tried if an evaluation of all other factors pointed towards Abu Dhabi as being the most suitable jurisdiction.
The court then pointed out the lack of connection between the shareholders and England when compared with Abu Dhabi. Most of the shareholders were either UAE citizens or Indian nationals and long-time residents in Abu Dhabi with substantial business interests and assets in the UAE. The Bank itself was UAE incorporated and had no connections to England other than its engagement of London solicitors to prepare some of the documentation against which it was prepared to lend in the UAE. The alleged wrong doing took place in the UAE in that the alleged implied representations were received and acted on in the UAE, if they were received and acted on at all. The loss which the Bank sought to recover from the shareholders was suffered in the UAE where the credit facilities were drawn down against by UAE domiciled entities. The governing law of the dispute was the law of the UAE – issues of UAE law that arose were better resolved by the UAE courts than by a court in England, particularly where there would be a right of appeal on those legal issues in the UAE. The evidence also suggested that there would be significant costs savings if the case was litigated in the UAE compared to England.
Accordingly, for all the reasons above, the court found in favour of the shareholders and ordered a stay of the proceedings.