#4995 - Ak Investment V. Kyrgyz Mobile Tel - Conflict of Laws BCL

AK Investment v. Kyrgyz Mobile Telecommunication Ltd

Facts

Summary of relevant facts:

(1) The Transfer Agreement was between the KFG Companies and IPOC, and IPOC had a right to transfer its interest to KMIC.

(2) The Transfer Agreement was governed by English law and included an arbitration agreement, providing for LCIA arbitration.

(3) Fellowes was not a party to the Transfer Agreement.

(4) From March 2004 there were arbitral proceedings between KMIC and the KFG Companies under the Transfer Agreement.

(5) In the proceedings which led to the April 2005 Judgment Fellowes falsely claimed to be a party to the Transfer Agreement.

(6) The April 2005 Judgment decided that Fellowes had signed the Transfer Agreement, and ignored the arbitration agreement.

(7) The English and BVI courts granted injunctions restraining Fellowes from bringing any proceedings to enforce rights under the Transfer Agreement except by way of LCIA arbitration in London, or enforcing the April 2005 Judgment.

(8) The English court (and the BVI court) made a declaration that no contract existed between the KFG Companies and Fellowes since Fellowes was not a party to the Transfer Agreement, and that the proceedings brought by Fellowes in Kyrgyzstan were vexatious and oppressive.

(9) The Receiver informed the Kyrgyz court that he had revoked all authority granted by Fellowes to its lawyers to represent it in the Kyrgyz proceedings.

(10) Fellowes sought and obtained an order from the BVI court discharging the appointment of the Receiver, but the order was stayed pending appeal.

(11) In October 2005 the BVI court granted an injunction restraining Fellowes from transferring the BITEL shares.

(12) Reservespetsmet obtained an order for registration of the BITEL shares in its name on the basis that it had purchased the BITEL shares from Fellowes in May 2005. Fellowes claimed that the sale of its interest in BITEL had been effected by an agent on its behalf but with its knowledge.

(13) There is strong evidence that Reservespetsmet's press releases about its acquisition of the shares came from the Altimo computer gateway.

(14) In breach of the injunction and the receivership order Fellowes sought re-instatement of the April 2005 Judgment. Its lawyers falsely told the Supreme Court of Kyrgyzstan that the Receiver had been discharged.

(15) The December 2005 Judgment confirmed the April 2005 Judgment on the basis that Fellowes was a party to the Transfer Agreement but held that because Fellowes had not signed the Transfer Agreement it was not bound by the arbitration clause. The Court also held that because the arbitration clause did not provide for the name of the arbitration forum to which the parties had agreed to refer disputes, the arbitration agreement was invalid.

(16) Shortly thereafter BITEL's offices were seized.

(17) The April 2006 Judgment was founded on the fact that BITEL was owned by Reservespetsmet (by reason of the April and December 2005 Judgments and the alleged sale to Reservespetsmet on behalf of Fellowes in May 2005), not by the KFG Companies. The Court directed that the judgment could be enforced against the sum of US$20.5 million held for the KFG Companies in the deposit account of the Kyrgyz Ministry of Justice pursuant to the April 2005 Judgment.

(18) The consequence of all of this was that (i) the KFG Companies were deprived of their shares in BITEL; (ii) the deposit of $20.5 million placed by Fellowes and intended for the KFG Companies was taken by BITEL; and (iii) the business of BITEL was transferred to Sky Mobile, an Alfa group company

Present Claim: BITEL commenced the present proceedings in the Isle of Man on July 25, 2006 to seek to enforce the balance of the April 2006 Judgment, $3.6 million…. On January 26, 2007 the KFG Companies filed their Defence and Counterclaim. The Counterclaim against BITEL seeks the following relief: (1) a declaration that the April 2006 judgment was obtained by fraud; (2) damages to be assessed in respect of the wrongful obtaining of the April 2006 judgment; (3) damages to be assessed in respect of the wrongful transfer of its assets to Sky Mobile.

Holding

Joining AK Investments (by service outside jurisdiction) on the ground that they are a proper party

The present Appellants sought to set aside the orders for service out of the jurisdiction. The Deemster set aside the orders because the KFG Companies had failed to establish that the Isle of Man was clearly the appropriate forum for trial of the issues in the counterclaim.

General Principles for service on a third party defendant:

On an application for permission to serve a foreign defendant (including an additional defendant to counterclaim) out of the jurisdiction, the claimant (or counterclaimant) has to satisfy three requirements: Seaconsar Far East Ltd. v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438, 453-457. First, the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits, i.e. a substantial question of fact or law, or both. The current practice in England is that this is the same test as for summary judgment, namely whether there is a real (as opposed to a fanciful) prospect of success: e.g. Carvill America Inc v Camperdown UK Ltd [2005] EWCA Civ 645, [2005] 2 Lloyd's Rep 457, at [24]. Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given. In this context "good arguable case" connotes that one side has a much better argument than the other: see Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547, 555-7 per Waller LJ, affd [2002] 1 AC 1; Bols Distilleries BV v Superior Yacht Services [2006] UKPC 45, [2007] 1 WLR 12, [26]-[28]. Third, the claimant must satisfy the court that in all the circumstances the Isle of Man is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.

Motive of Suing D1 is irrelevant (even if it is only to get D2 into jurisdiction), but may inform exercise of discretion

First, the mere fact that D1 is sued only for the purpose of bringing in D2 is not fatal to the application for permission to serve D2 out of the jurisdiction…. The point arose in Multinational Gas because D1 was in liquidation and therefore the plaintiff had no real prospect of recovery against D1. Lawton LJ did not treat as fatal to the application the fact that the sole, or predominant, reason for beginning the action against a party duly served within the jurisdiction was to enable an application to be made to serve the parties outside the jurisdiction. It was instead a relevant factor in the exercise of the discretion…. the fact that the main or predominant purpose of keeping D1 in the proceedings was to enable the plaintiff to bring in D2 was not a ground for saying that the proceedings were not properly brought against D1…. The better view, therefore, is that the fact that D1 is sued only for the purpose of bringing in the foreign defendants is a factor in the exercise of the discretion and not an element in the question whether the action is "properly brought" against D1, provided that there is a viable claim against D1.

Bound to Fail/Real issue to be tried:

Because this appeal is concerned with the "necessary or proper party" provision, the question of the merits of the claims is relevant to the question of whether the claim against D1 is "bound to fail" and to the question whether there is a "serious issue to be tried" in relation to the claim against D2. There is no practical difference between the two tests, and they in turn are the same as the test for summary judgment… The general rule is that it is not normally appropriate in a summary procedure (such as an application to strike out or for summary judgment) to decide a controversial question of law in a developing area, particularly because it is desirable that the facts should be found so that any further development of the law should be on the basis of actual and not hypothetical facts…. There is no reason why the same principle should not apply to the question whether, in a service out of the jurisdiction case on the "necessary or proper party" head, a claim is "bound to fail" as well as to the question whether there is a "serious issue to be tried" in the claim against D2.

Is D2 a Necessary or Proper Party to the proceedings

Third, the question whether D2 is a proper party is answered by asking: "Supposing both parties had been within the jurisdiction would they both have been proper parties to the action?" D2 will be a proper party if the claims against D1 and D2 involve one investigation… Clarke LJ also used, or approved, in this connection the expressions “closely bound up” and “a common thread.”

Will Justice be done in the foreign jurisdiction?

Two questions on this aspect of the present case have been canvassed on this appeal. The first is the standard of proof to be satisfied by the party which asserts that justice will not be done in the foreign jurisdiction: does that party have to show that justice will not be done, or simply that there is a risk that it will not be done? The second is whether the court may rule that as a result, for example, of endemic corruption, justice is not to be obtained in the foreign legal system in general.

… that was not a case in which this question arose for decision, but it is clear that Lord...