The Court of Appeal has held, by a majority, that the jurisdiction rules in the Brussels regime allow a defendant to be sued in a co-defendant’s domicile (rather than their  own domicile) even if the sole object of bringing the proceedings against the “anchor” defendant was to bring the foreign-domiciled defendant within the jurisdiction: JSC Commercial Bank Privatbank v Kolomoisky and Bogolyubov and others [2019] EWCA Civ 1708.

Although the decision was in the context of article 6(1) of the Lugano Convention, the conclusion applies equally to the identical provisions regarding co-defendants in “closely connected” claims in the Brussels Regulation (article 6(1)) and the recast Brussels Regulation (article 8(1)).

Accordingly, provided a claimant has a sustainable claim against an anchor English defendant, which it intends to pursue to judgment, it will be entitled to rely on the relevant EU rules to join a foreign defendant, where the court accepts that the claims are so closely connected that it is expedient to hear them together to avoid the risk of irreconcilable judgments. Jurisdiction will not be refused on the basis that the sole purpose in bringing the action was to sue the foreign defendant in the same proceedings.

The decision is also important for its ruling on the question of whether EU jurisdictional rules can be applied by analogy, or “reflexively”, to circumstances falling outside the rules’ scope. The court held that the Lugano Convention rules as to when a court may stay its proceedings in favour of parallel proceedings in another Convention state (or lis pendens) could be applied by analogy where the foreign proceedings were in a non-Convention state.

The findings regarding reflexive application are of particular interest in the context of a no deal Brexit scenario. In that scenario it is uncertain whether the courts of the remaining EU states will only have a power to stay their proceedings in favour of English proceedings in the circumstances specified in articles 33/34 of the recast Brussels Regulation (ie where the English court was first seised) or whether they will have a residual discretion to do so outside those circumstances, for example where there is an English exclusive jurisdiction clause. Previous High Court authority has taken the view that, given that  articles 33/34 expressly incorporate some degree of reflexive operation, it was not open to find that there is a discretionary power outside of these provisions (Gulf International Bank BSC v Aldwood [2019] EWHC 1666 – see our post).

While the court in this case did not directly consider that question, and the issue is ultimately a matter for the CJEU, the decision may leave open the scope for an argument that there is such a residual discretion.

Background

The proceedings involve a state-owned Ukrainian bank pursuing allegations of large-scale fraudulent misappropriation against various defendants.

The bank alleges that the fraud was orchestrated by the first and second defendants, Mr Kolomoisky and Mr Bogolyubov, who were the bank’s majority shareholders prior to its nationalisation. Both were domiciled in Switzerland at the relevant time. The other defendants comprise three English incorporated companies and three companies incorporated in the British Virgin Islands, who are alleged to have procured or assisted in the fraud.

The High Court (Mr Justice Fancourt) stayed the proceedings against all the defendants on jurisdictional grounds.

As against Mr Kolomoisky and Mr Bogolyubov, that finding was primarily by reference to  article 6(1) of the Lugano Convention (which applied, rather than the Brussels Regulation regime, because of their Swiss domicile). The general rule under the Lugano Convention is that a party domiciled in a Convention state must be sued in their country of domicile unless an express exception applies. One of those exceptions is in article 6(1) which provides that, where such a person is one of a number of defendants, he or she may also be sued in the place where any one of them is domiciled, provided the claims “are so closely connected that it is expedient to hear and determine them together” to avoid the risk of irreconcilable judgments. (The position is the same under the recast Brussels Regulation, where the general rule is in article 4 and the relevant exception for closely connected claims is in article 8(1)).

Mr Justice Fancourt held that article 6(1) was subject to an implied condition that it cannot be relied on where the sole object of commencing the proceedings was to bring a defendant within that jurisdiction – that is, to remove it from the jurisdiction of its domicile or another competent court (the so-called “sole object condition”). The judge concluded on the facts here that the proceedings against the English defendants had been brought for the sole purpose of bringing the foreign defendants within the English jurisdiction and that the court therefore had no jurisdiction over them.

Further, the judge went on conclude that, even if the court had had jurisdiction over Mr Kolomoisky and Mr Bogolyubov, he would have granted them a stay on the grounds that there were pending defamation proceedings in the Ukraine which involved overlapping factual issues and the same parties.

He also stayed the proceedings against the English defendants under article 34(1) of the recast Brussels Regulation on the basis that the Ukraine proceedings were “related proceedings” which had been commenced prior to the English proceedings.

As a consequence of the stays against the other defendants, the proceedings against the BVI defendants were then also stayed on the common law ground that England was not the most appropriate forum (forum non conveniens).

Decision

The Court of Appeal allowed the bank’s appeal and the stay against all defendants was lifted. David Richards, Flaux and Newey LJJ each contributed to a joint judgment, with Newey LJ also delivering a separate judgment dissenting on the question of whether the sole object condition existed.

The appeal considered multiple issues, including the following.

Is article 6(1) subject to a “sole object” condition?

Following a detailed review of the text and history of article 6(1) (and its equivalent in the Brussels regime), the majority concluded that it was not subject to any “sole object” condition. In particular, the court was influenced by the following factors:

  • There was a clear contrast between the wording of article 6(1) and that of the following article 6(2), which allows defendants to be sued out-of-state in certain circumstances in warranty or guarantee claims. Only the latter provision includes an express exception for cases where the sole object was to remove a defendant from a court that would otherwise be competent.
  • The member states had apparently considered and rejected the inclusion of such a sole object condition in the corresponding provision in the Brussels regime when formulating the changes between the Brussels Convention (which had contained no restriction at all on the right to sue in a co-defendant’s jurisdiction) and the Brussels Regulation (which introduced the condition regarding the close connection between claims). The “close connection” condition codified a qualification that had been recognised in EU case law.
  • The question of how jurisdiction should be allocated requires certainty and predictability. A “sole object” condition, turning on a claimant’s intentions (even assessed objectively), would introduce uncertainty. The “close connection” condition was more objective.

As a result, the court concluded that “a claimant with a sustainable claim against an anchor defendant, which it intends to pursue to judgment in proceedings to which a foreign defendant is joined as a co-defendant, entitled to rely on article 6(1) even though the claimant’s sole object in issuing the proceedings against the anchor defendant is to sue the foreign defendant in the same proceedings”. It rejected a submission that a court must be satisfied that the claimant would in any event sue the anchor defendants alone.

In reaching that conclusion, the court did accept that article 6(1) (and its equivalents in the Brussels regime) are subject to the overarching EU principle against abuse of law. That principle would prevent a claimant from contriving artificially to fulfil the requirement for sufficient connection between the claims. However, the court considered that that rule would not be breached purely by bringing an action with the sole object of removing a foreign defendant from the courts of its domicile. Examples given by the court of what might amount to artificial fulfilment included naming a fictitious person as an anchor defendant; commencing against the anchor defendant knowing that it was an inadmissible claim; or a collusive arrangement between a claimant and the anchor defendant to conceal a settlement so that the proceedings could be issued or continued against foreign defendants.

The court went on to find that even if, contrary to the above conclusion, the sole object condition did exist, it had not been breached in this case.  Amongst the (objectively determined) valid reasons the bank had for bringing the proceedings against the English defendants was the ability to obtain disclosure from them.

Whether the EU jurisdiction rules can be applied by analogy to non-EU states

The Court of Appeal was also required to consider the trial judge’s finding that, regardless of the sole object question, it was appropriate to stay the proceedings on the basis of the pending Ukraine defamation proceedings (that is, the lis pendens basis).

As the Ukraine is not a Lugano Convention state, the Lugano article 28 provisions regarding pending proceedings in another member state did not apply directly. However the trial judge had held that the provisions could be applied “reflexively”, or by analogy, to pending proceedings in a non-Convention state (or “third state”).

The question of whether the EU jurisdictional rules can be applied reflexively in such a way has been the subject of much uncertainty. In 2005, the CJEU in Owusu v Jackson (Case C-281/02) confirmed that an EU court has no power to stay its proceedings in favour of a non-EU court on the grounds that the foreign court would be a more appropriate forum (forum conveniens) (see our post). However, there has been conflicting first instance authority on whether the ruling in Owusu also precludes a power to stay other than on forum conveniens grounds – such as where there was an exclusive jurisdiction clause in favour of the non-EU court, or there are parallel proceedings in the non-EU court, or some other grounds on which the non-EU court could take exclusive jurisdiction.

The Court of Appeal here concluded that Owusu does not preclude a power to stay in those circumstances. In doing so, it endorsed and applied the High Court’s reasoning in Ferrexpo AG v Gilson Investments Ltd [2012] EWHC 721 (Comm) over conflicting first instance authority.

The court rejected the claimant’s argument that the EU jurisdictional provisions provide an exclusive code, so that it is not open to a court to create an additional exception to the default position that EU-domiciled defendants must be sued in their domicile, by applying article 28 by analogy to non-EU proceedings. In the court’s view, the application of the Lugano provisions by analogy to cases involving proceedings in third states is not an interpretation of the Convention that involves an impermissible extension of its scope, but a recognition that the same principles that underlie those articles should be applicable in the case of proceedings in a third state. This approach does not subvert the Convention but, on the contrary, is in line with its purposes, to achieve certainty in relation to jurisdiction and to avoid the risk of inconsistent judgments.

The court was also not persuaded by an argument based on the fact that the recast Brussels Regulation does now expressly provide (in article 34) a power to stay where there are pending proceedings in a third state (where they are commenced first in time), whereas the Lugano Convention has not been similarly amended. The court commented that not only was there nothing to indicate why the amendment in article 34 was made, it simply did not follow that, prior to the amendment, there could not have been a reflexive application of the prior provision to third state proceedings.

The court here did not consider or comment on the separate issue of whether articles 33/34 themselves allow scope for a reflexive operation of the court’s powers in other circumstances, so as to allow stays where the third state proceedings were commenced second in time but there is, for example, an exclusive jurisdiction clause in favour of a third state. As noted above, that issue will be relevant to whether an EU court, after Brexit, will have power to stay its proceedings in favour of English proceedings brought pursuant to an exclusive English jurisdiction clause in circumstances where the English proceedings were brought only after the EU proceedings.

Exercise of the discretion to stay

Having found that article 28 could potentially be applied to the present circumstances by analogy, the court went on to hold that the trial judge had also been right to conclude that the English proceedings and the Ukraine defamation proceedings were sufficiently related actions for the purposes of that provision (and of the recast Brussels Regulation article 34(1)(a)). That was the case even in light of evidence that the two claims would not be able to be consolidated within the Ukraine judicial system and so the risk of inconsistent judgments would remain. The court observed that proceedings could be “related” where it was desirable that they be heard together even if that was not possible or practicable.

However, the judge had erred in exercising his discretion under those provisions. While the unavailability of consolidation in the foreign jurisdiction did not automatically mean that a court must refuse to stay its proceedings, the court observed that this will usually be “a compelling reason” to refuse a stay, in the absence of any strong counterveiling factors. In this case, there were no such factors. To the contrary, the court commented that it would be entirely inappropriate to stay an English fraud claim in favour of Ukrainian defamation claims, in circumstances where the fraud claim involved a good arguable case of fraud and money laundering on “an epic scale”.

Given its rulings that the English proceedings could continue against Mr Kolomoisky and Mr Bogolyubov and the English defendants, the court overturned the stays against the BVI defendants on forum conveniens grounds (on the basis that they were necessary and proper parties to the proceedings against the other defendants).

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